The Hindu Business Line : Tata Motors: Primary outlook positive, buy April futures

Tata Motors: The stock closed at Rs 498 in the spot market. The primary trend appears positive though the stock is likely to first retrace some of its recent gains. On the downside, the stock could find support at Rs 473. On the upside, it could move to Rs 520.

Buy April futures when the spot price is Rs 473. Initiate the futures position with spot-market-stop-loss at Rs 460. This exposes the position to 13-point downside risk. The risk has to be controlled with trailing stop-loss. Otherwise, the position will suffer huge losses because the contract-multiplier is 825 units.

Traders can also buy in-the-money calls instead of futures. The April 490 calls may be optimal strike. The option currently trades for 24.50 points. The position will be marginally profitable if the stock reaches the upside price target on option expiration. The payoff will be better if the stock reaches the price target sooner, as it will preserve the option's time value. Traders note that the maximum loss for the option position is higher than the stop-loss for the futures position.

ACC: The stock closed at Rs 259 in the spot market. The outlook appears positive. The stock may first see some correction to its earlier gains. In the near term, the stock could find support at Rs 253. On the upside, it could move to Rs 281.

Buy May futures when the spot price is Rs 253. Initiate the futures position with spot-market-stop-loss at Rs 245. This exposes the position to 8-point downside risk. Trading the position with trailing stop-loss will control the downside risk. The minimum order size is 1,500 units.

Traders can buy April 260 calls instead of May futures. The option trades for 9.25 points. The position will be profitable even if the stock reaches the upside price target on option expiration. The reason is that the price target is far away from the strike plus the premium.

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