B. Venkatesh

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

Satyam Computer: The stock closed at Rs 408 in the spot market. The outlook may turn negative if the stock trades below Rs 403. In the event, the stock could move to Rs 387. Continual selling could push the stock to Rs 373.

Sell February futures after the stock moves below Rs 403 in the spot market. Initiate the position with spot-market-stop-loss at Rs 412. The position has to be traded with trailing stops. Otherwise, the upside risk will be high, as the contract-multiplier is 1,200 units. The margin on the futures position is approximately 18 per cent of the contract value.

Traders can alternatively construct ratio put spread. This position can be initiated with one long February 400 puts and two short February 370 puts.

The spread can be set up for a net debit of 3-4 points. The position would payoff 7-8 points net if the stock reaches the price target in 5-8 trading sessions.

Note that the payoff will be better if the stock reaches the price target at or near option expiration. The reason is that the position is theta-positive, meaning that it will benefit from time decay.

ICICI Bank: The stock closed at Rs 370 in the spot market. The outlook may turn negative if the stock trades below Rs 363. In the event, the stock may move to Rs 349 and then to Rs 335.

Sell February futures after the stock moves below Rs 363 in the spot market. Initiate the position with spot-market-stop-loss at Rs 372. The position has to be traded with trailing stops.

The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 1,400 units. No alternative strategies are available, as options on the stock are not actively traded.

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

(This article was published in the Business Line print edition dated February 4, 2005)
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