Financial Daily from THE HINDU group of publications
Saturday, Jul 24, 2004
Financial Daily from THE HINDU group of publications Saturday, Jul 24, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Outlook positive for HCL Tech B. Venkatesh
THE following strategies are based on Friday's trading in the spot and the derivatives segments on the NSE: Maruti Udyog: The stock closed at Rs 425 in the spot market. The outlook appears negative. The downside price target is Rs 394. Sell August futures. The farther-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 437. Note that the recommended view may be negated if the stock trades above this level. It may be less risky to sell futures after the stock trades below Rs 417 in the spot market. The stop-loss could then be placed at Rs 425. The margin on the futures position is approximately 30 per cent of the contract value. The minimum order size is 400 units. Aggressive traders willing to bet on the stock declining immediately can consider setting up a put spread. This position can be initiated with long July 420 puts and short July 410 puts. The spread can be set up for a net debit of 6 points. Note that the short put is inside the price target. The payoff will be the maximum if the stock trades at Rs 410 on option expiration. The position suffers from high theta risk, as the contract expires on Thursday. HCL Tech: The stock closed at Rs 306 in the spot market. The outlook could turn positive if the stock trades above Rs 315. In the event, the stock could drift to Rs 332. Buy August futures after the stock moves above Rs 315 in the spot market. Initiate the position with spot-market-stop-loss at Rs 308. The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high, as the contract-multiplier is 1,300 units. The margin on the futures position is approximately 20 per cent of the contract value. No alternative strategies are available, as options on the stock are not actively traded.
Note: The price targets mentioned above represent the likely level that each stock can reach. It is best to take profits if a position provides sizable returns intra-day.
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