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Friday, Jun 14, 2002

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Satyam outlook remains negative

B. Venkatesh

CALLS on top-traded stocks ended lower on Thursday's trading at the NSE.

Here are some buy/sell strategies based on the day's trading:

Equity options: The immediate outlook on Satyam Computer remains negative. Consider writing the June 260 calls. You will benefit from the option's high implied-volatility (vols). The loss due to passage of time (theta), however, is low, which is not good for the short position. If you hold Satyam shares in the spot market and do not want to sell them, consider writing the June 260 calls against your stock. Your gain will be equivalent to the option premium. You will not incur losses even if the stock moves above 260, but you cannot gain either, because the loss from your short options position will offset the gain from holding the stock. The position is profitable as long as the stock does not go beyond 260.

  • The immediate outlook on Reliance too remains negative. Consider writing the June 300 calls. This position will generate profits if Reliance stock moves down. Note, however, that the loss in option value due to passage of time (theta) is low.

    Index options: In line with the fall in the spot index, Nifty calls also lost value. The immediate outlook on the market appears negative. Consider writing (selling) the June 1100 calls. You can benefit from the high theta. The implied vols on the option is, however, lower than the historical vols on the index. This means that the option can go up in value even if the market goes down, if the traders re-price the option on higher vols.

    Follow-up: The outlook on BPCL remains negative. Consider holding your short position in the June 300 calls. The position gained 2 points over Wednesday's close.

  • While Tata Engg did rise marginally during the day, consider holding your short position in June 160 calls, as the outlook on the stock appears negative.

  • L&T may have hit its near-term high for now. Hold your long position in the June 180 calls with stop-loss limit. You can still profit from the long position if the stock moves up before June 27, which is when the June option expires.

  • The outlook on HPCL remains negative. Consider holding your short position in the June 300 calls. The position has now generated nearly 2.5 points profit.

  • The sentiment in Satyam continues to remain negative. Consider holding your short position in the June 240 calls. The position has now generated one point profit.

  • The short position in the June 300 calls on Reliance Industries has now generated profit worth 1.5 points. Consider holding the position, as the outlook on the stock remains negative.

  • The outlook on VSNL appears positive. Consider holding your long position in the June 170 calls for now. The position is now down 2 points, but is likely to generate profits, as the stock is likely to move up in the near term.

  • Consider holding the short position in the June 1100 Nifty calls and long position in the 1060 Nifty puts. The profit points for the short calls and long puts are 3.5 points and 1 point respectively.

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