The Hindu Business Line : Outlook may turn positive for ONGC, Maruti

ONGC: The stock closed at Rs 820 in the spot market. The outlook may turn positive if the stock moves above Rs 825. The upside price target would then be Rs 856.

Buy January futures after the stock moves above Rs 825 in the spot market. Initiate the position with spot-market-stop-loss at Rs 813. The position has to be traded with trailing stops 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.

Traders can construct a vanilla call spread as an alternative strategy. This position can be initiated with long January 840 calls and short January 860 calls. The spread can be set up for a net debit of 5 points. The position would payoff 8 points if the stock moves to the upside price target within five trading sessions. An aggressive strategy would be to construct a ratio call spread. This position can be initiated with one long December 840 calls, one short December 860 calls and one short December 880 calls. The spread can be set up for a net credit of three points. The position would payoff 9 points if the stock moves to the price target within the trading horizon.

Maruti Udyog: The stock closed at Rs 462 in the spot market. The outlook may turn positive if the stock moves above Rs 466. The upside price target would then be Rs 478.

Buy January futures after the stock moves above Rs 466 in the spot market. Initiate the position with spot-market-stop-loss at Rs 459. The position has to be traded with trailing stops to control the downside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 400 units.

It is not optimal to set up alternative strategy with options. The reason is that the calls are trading rich. This exposes the position to high vega risk. If the horizon volatility is far lower than the purchased volatility, the payoff is likely to be unattractive. Unfortunately, bull put spreads cannot be set up because it does not provide volatility capture.

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

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