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B. Venkatesh

THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE:

Tata Motors: The stock closed at Rs 468 in the spot market. The outlook may turn positive if the stock trades above Rs 477. The upside price target is Rs 499.

Buy January futures after the stock moves above Rs 477 in the spot market. Initiate the position with spot-market-stop-loss at Rs 466. The position has to be traded with trailing stops to control the downside risk.

The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 825 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long January 480 calls and two short January 500 calls. The spread can be set up for less than one point debit. The position will payoff 15 points net if the stock reaches the upside price target before option expiration.

TCS: The stock closed at Rs 1,264 in the spot market. The outlook may turn positive if the stock moves above Rs 1,284. In the event, the stock could move to Rs 1,339.

Buy January futures after the stock moves above Rs 1,284 in the spot market. Initiate the position with spot-market-stop-loss at Rs 1,256. The position has to be traded with trailing stops to control the downside risk.

The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 250 units.

Aggressive traders can construct short time-spread as alternative strategy. This position can be initiated with one long January 1290 calls and one short February 1290 calls. The spread can be set up for a credit of 30-32 points.

The spread will payoff 10-12 points if the stock reaches the upside price target before the near-month contract expires. If the stock declines sharply, the spread will still generate 12-14 points. Note that the spread has to be closed on or before January 27.

Otherwise, the near-month contract will expire, leaving the position exposed to negative convexity from the short February call.

(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

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