The Hindu Business Line : Tata Motors: Outlook negative, sell June futures

Tata Motors: The stock closed at Rs 411 in the spot market. The recent uptrend from Rs 403 to a high of Rs 475 appears to be a retracement to the earlier decline by Rs 228. The outlook for the stock is negative. The downside price target is Rs 375.

Sell June futures. The near-month contract trades at a 6-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 424. This exposes the position to 13-point upside risk. This risk is high but cannot be cost-effectively hedged with horizon-matching calls. The position has to be traded with trailing stop-loss limits. The minimum order size is Rs 825 units.

Alternative strategies to the short futures position are not available at present because June options are not actively traded yet. Traders can consider constructing vertical bear spread after the options become actively traded. Assuming that options will not trade very rich, traders can consider initiating the bear spread with long June 420 puts and short June 380 puts. The payoffs will be higher if the stock price is near the strike price of the short put at the trading horizon.

Oriental Bank of Commerce: The stock closed at Rs 238 in the spot market. The recent uptrend to a high of Rs 259 appears to be a retracement to the earlier decline by Rs 218. The outlook appears negative. The downside price target is Rs 204.

Sell June futures. The near-month contract trades at a 4-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 249. This exposes the position to a 11-point upside risk. The position has to be traded with strict stop-loss limits. Otherwise, the upside risk will be high because the contract-multiplier is 1,200 units. No alternative strategies to the futures position are available because options on the stock are not actively traded.

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