Financial Daily from THE HINDU group of publications
Tuesday, Sep 07, 2004
Financial Daily from THE HINDU group of publications Tuesday, Sep 07, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge i-flex Solutions: Outlook positive, buy Sept futures B. Venkatesh
THE following strategies are based on Monday's trading in the spot and the derivatives segment on the NSE: Tata Motors: The stock closed at Rs 392 in the spot market. The outlook appears positive. The upside price target is Rs 414. Buy September futures. The near-month contract trades at one-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 381. The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high because the contract-multiplier is 825 units. The margin on the futures position is approximately 17 per cent of the contract value. Traders can consider constructing bull call-spread as an alternative strategy. This position can be initiated with long September 380 calls and short September 400 calls. The position can be set up for a net debit of 10 points. It is advantageous to buy in-the-money strike because options are trading cheap. For the same reason, the spread does not offer volatility capture. The payoff will be better if the stock reaches the upside price target towards the trading horizon. The reason is that the spread is vega-positive. i-flex Solutions: The stock closed at Rs 632 in the spot market. The outlook appears positive. The upside price target is Rs 686. Continual buying could push the stock to Rs 709. Buy September futures. The near-month contract trades at 7-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 610. The long futures position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 300 units. Alternative strategies are not available, as options on the stock are not actively traded.
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