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Downside in Reliance?

B. Venkatesh

PUTS on most top-traded stocks ended higher on Tuesday's trading in the derivatives segment at the NSE.

The following are some buy/sell strategies based on the day's trading:

Equity options: The immediate outlook on Reliance appears negative. Consider writing (selling) the July 280 calls. You can benefit from the option's high implied-volatility (vols). This means that the option may fall in value if the traders re-price the calls at lower vols, and this could happen even if Reliance moves up in the spot market. Note, however, that the loss in value due to passage of time (theta) is low, a factor that does not favour the short position.

  • The immediate outlook on Satyam appears positive. Consider buying the July 220 calls. The option's implied vols is high. This means that the option can lose value if the traders re-price the calls at lower vols, and this may be happen even if Satyam moves up in the spot market. If you hold Satyam shares and want to enhance revenue by selling (writing) puts, note that the position is risky, as put volumes are low, and put vols high.

    Index options: Nifty calls ended lower, as did the spot index. The immediate outlook on the market appears negative. Selling calls may not be very rewarding, as the market downside does not appear very far from the current level. You may want to construct a bear spread (writing a lower strike call and buying a higher strike call) to protect your losses and yet profit from the downside in the Nifty spot index. It, however, pays to wait and read the market direction than take such a position now.

    Follow-up: The outlook on M&M remains negative. Consider holding your short position in the July 120 calls. The calls lost 1.75 points since Monday's close. If you had bought the calls in the early hours of Tuesday's trading, your short position will be already carrying profits.

  • Consider holding your long position in the July 240 calls on Satyam, as the outlook on the stock appears positive. The calls ended half a point higher over Monday's close.

  • The outlook on Reliance remains negative. Consider holding your short position in the July 300 calls. The position now carries 2 profit points per option.

  • The outlook on SBI remains negative. Consider holding your short position in the July 260 calls. The position now carries one profit point per option.

  • L&T carries some upside from the current levels. Consider holding your long position in the July 180 calls.

  • The outlook on the market is still negative, though the downside from the current level may be limited. Consider holding your short position in the July 1080 calls combined with the long position in the July 1100 calls.

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