On the hedge
Fresh positions risky
TUESDAY'S trading in the derivatives segment at the NSE saw most equity calls move in sympathy with the underlying, and end in the positive territory. Here are some buy/sell strategies based on the day's trading:
Equity options: Satyam cantered up in the spot market with the calls moving in tandem.
Taking a position in Satyam options based on the bullish undercurrent in the spot market on Tuesday may not be rewarding. This is because the time decay on February contracts is very high, as the options are due to expire on Thursday. Buying March contract is also not advisable, due to the high premium and implied volatility.
Dealers who are bullish on the stock can consider writing the March 280 puts, which fetched 16 points at the day's close. Dealers should, however, note that a naked short position in puts is risky. Besides, the margin requirements are stiff, and may cut into the points earned due to the option write.
L&T also figured among the list of the top-traded options. The outlook on the stock appears positive, but it is unlikely to move enough for long positions on calls to be rewarding. Dealers may, hence, refrain from taking positions.
Index options: The positive sentiment in the spot market rippled into this segment, as most calls ended sharply higher. The February 1160 calls clocked the highest volumes in this segment, with 640 contracts.
With the Union Budget to be announcement on Thursday, and the February contracts set to expire on that day, the risk in the market is very high. Dealers may, therefore, refrain from taking long or short positions on the index options.
Follow-up: Dealers who are long on March 840 calls on Ranbaxy can hold their positions, with stop loss limits.
Those who hold a spread exposure on Satyam can reverse their position; the spread was constructed by buying the February 280 calls and writing the March 320 calls.
Dealers who are long on February and March 110 calls on the Tata Steel can reverse their position in the front-month contracts, but hold the March contracts with stop-loss limits.
Those who are short on February 300 and 320 calls on Satyam can reverse their positions.
Dealers who are short on March 210 and 220 calls on L&T can reverse their positions.
Dealers who are short on February and March 340 calls on Reliance Industries can reverse their front-month contracts but hold the March contract, with stop-loss limits.
Dealers who hold a spread exposure on the Nifty can reverse their positions; the spread was constructed by buying the February 1160 calls and writing the March 1200 calls.
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