I have bought Bata India December futures at ₹1,700. Now it is trading at around ₹1,625. Should I hold my position till expiry or book loss? I can even carry forward this position in January. Kindly advise.
Mehul Shah
The stock of Bata India (₹1,624.85) saw its latest leg of downtrend after touching ₹2,000 in August. Although the bias appears bearish, the stock has a strong support at ₹1,615. Specifically, the price band of ₹1,575-1,615 is expected to offer the stock a good support. But since the broader market sentiment has been bearish of late, you should take necessary risk management measures.
Considering the above, we suggest you hold futures long on the back of the support band we mentioned earlier. However, you may buy a put option as a hedge. Since we are entering the final week of the current series, the option premium will be lower. Our recommendation would be to buy two lots of either 1600-strike put or 1620-strike put. You can decide between the two based on the liquidity in these options and how much money you wish to allocate for hedging.
In case the stock rebounds from here, exit all the positions (including options) at once when the price hits ₹1,735 – a resistance level. You can consider going long again if the stock surpasses the resistance at ₹1,800. There are a series of resistances between ₹1,735 and ₹1,800. On the other hand, exit all the positions when the stock decisively breaches the support at ₹1,575.
If the stock neither hits ₹1,735 nor falls below ₹1,575 before December expiry, you can consider rolling over to the January series. But instead of two, buy one lot of put option as a hedge since the premium will be higher. Consider buying at-the-money puts for hedging. Target and stop-loss levels are the same as the above. That is, exit futures when the underlying stock rallies to ₹1,735 on the upside or book loss if price falls below ₹1,575.
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