The Hindu Business Line : Outlook positive for Tata Steel

Tata Steel: The stock closed at Rs 396 in the spot market. On the upside, the stock could move to Rs 425. The outlook would turn negative if the stock trades below Rs 370.

Buy August futures. The near-month contract trades at one-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 382. The position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 24 per cent of the contract value. The minimum order size is 900 units.

Traders can alternatively construct a long strangle to take advantage of any two-way movements in the stock. This position can be initiated with long August 400 calls and long August 370 puts. The position can be set up for a net debit of 20 points. The position will deliver a 5-point profit even if the stock reaches the upside price target of Rs 425. If the stock were to trade below Rs 370, it could drift to Rs 339. In the event, the strangle will generate a 10-point profit because the long 370 puts will be deep in-the-money. The position's primary risk is time decay. The strangle will be worst affected if the stock trades between Rs 370 and Rs 395 at the trading horizon.

Bank of Baroda: The stock closed at Rs 162 in the spot market. The outlook appears negative. The downside price target is Rs 151.

Sell August futures. The near-month contract trades at 2-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 166. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high because the contract-multiplier is 1,400 units. The margin on the futures position is approximately 27 per cent of the contract value. No alternative strategies are available, as options on the stock are not actively traded.

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