The Hindu Business Line : Marginal correction likely in Tata Steel, BoB

Tata Steel: The stock closed at Rs 263 in the spot market. It has fallen from a high of Rs 425 to the day's low of Rs 231 in the first phase (A) of a corrective rally. Technically, the stock has to retrace its recent loss of Rs 194 in the next phase (B) of the corrective rally. In the event, the stock could move to Rs 279 and then to Rs 301. Given the negative outlook for the broad market, however, this view may be negated if the stock trades below Rs 245. Because of the high position risk, it may be better to trade intra-day and not carry the position overnight.

Consider buying May futures. The near-month contract trades at one-point discount to the spot price. Traders have to strictly cut their position should the stock trade below Rs 245. This exposes the position to a downside risk of 18 points. The minimum order size is 900 units. The margin on the futures position is approximately 48 per cent of the contract value. The alternative strategy of constructing positions with options might not be optimal. The reason is that option strategies may not payoff intra-day because of their richness and high intra-day volatility.

Bank of Baroda: The stock closed at Rs 139 in the spot market. The stock has fallen from a high of Rs 269 to a low of Rs 130 in just one leg of the first phase of the corrective rally. Technically then, the stock could marginally retrace this fall in the second leg of the first phase of the rally. On the upside, it could find resistance at Rs 163. The view will be negated if the stock trades below Rs 127. The strategy will be better for intra-day trade though the price levels are based on daily charts. The reason is that the downside risk may be high if the position is carried overnight.

Consider buying May futures. The near-month contract trades at nine-point discount to the spot price. Traders should necessarily cut their long position if the stock trades below Rs 127. The downside risk of 12 points is, indeed, high because the contract-multiplier is 1,400 units. The margin on the futures position is approximately 39 per cent of the contract value. Alternative strategies are not possible because options on the stock are not actively traded.

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