The Hindu Business Line : Satyam: Outlook negative, sell August futures

Sell August futures. The farther-month contract trades at one-point premium to the spot price. Initiate the position with spot market stop-loss at Rs 339. Note that the recommended view may be negated if the stock trades above that level. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 1,200 units.

An alternative strategy would be to construct bear put-spreads. The position can be initiated with long August 320 puts and short August 300 puts. The spread can be set up for a net debit of 7 points. The position helps more in lowering the initial outlay than in volatility capture. The spread suffers from theta risk because the strike plus the premium of the long put is not far away from the price target.

Canara Bank: The stock closed at Rs 132 in the spot market. The outlook appears negative. The downside price target is Rs 114.

Sell August futures. The farther-month contract trades at 2-point premium to the spot price. Initiate the position with spot market stop-loss at Rs 140. A cautious strategy would be to short futures after the stock cuts below Rs 122 in the spot market. In the event, the spot market stop-loss should be set at Rs 128. It is important to trade the position with trailing stop-loss. Otherwise, the upside risk will be high, as the contract-multiplier is 1,600 units. The margin on the futures position is approximately 32 per cent of the contract value. No alternative strategies are available, as options on the stock are not actively traded.

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