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Outlook may turn negative for HPCL, Punjab National Bank

B. Venkatesh

THE following strategies are based on Thursday's trading in the spot and the derivatives segment on the NSE:

HPCL: The stock closed at Rs 341 in the spot market. The outlook remains negative on the daily and weekly chart despite the continual uptrend in recent times. The stock could see a reversal if it trades below Rs 326. In the event, it could drift to Rs 302.

Sell November futures after the stock trades below Rs 326 in the spot market. Initiate the position with spot-market-stop-loss at Rs 335. 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 650 units.

Traders can construct bear put-spread as alternative strategy. This position can be initiated with long November 330 puts and short November 310 puts. The spread can be set up for a net debit of 3 points. The position will generate 16-18 points if the stock reaches the price target in 5 trading days. The pay-off will be lower if the target is achieved earlier. The reason is that the short put will carry higher value due to lower time decay.

PNB: The stock closed at Rs 262 in the spot market. The outlook could turn negative if the stock trades below Rs 259. The downside price target is Rs 243.

Sell November futures after the stock trades below Rs 259 in the spot market. Initiate the position with spot-market-stop-loss at Rs 265. The position has to be traded with trailing stops. Otherwise, the upside risk will be high, as the contract-multiplier is 1,200 units. The margin on the futures position is approximately 17 per cent of the contract value.

Traders can construct bear call-spread as alternative strategy. This position can be initiated with short November 250 calls and long November 260 calls. The spread can be set up for a net credit of 10 points. This is the maximum profit on the position and will be achieved if the stock closes below Rs 250 at option expiration. The optimal strategy is to reverse the position if the stock moves above Rs 270 before option expiration. If this price is reached on or before November 15, loss on the spread will be 3-5 points. Note that the position will be subject to high convexity risk if kept open through the trading horizon.

(Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

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