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Markets
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Derivatives Markets
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On the hedge
Outlook on Reliance remains negative
B. Venkatesh
WEDNESDAY'S trading in the derivatives segment at the NSE saw most equity calls end in the negative territory. Here are some buy/sell strategies based on the day's trading:
Equity options: The March 320 calls on Reliance Industries clocked the highest volumes on that stock, with 347 contracts.
The immediate outlook on Reliance continues to remain negative. Dealers can, hence, consider writing the March 320 calls, which fetched 8.5 points at the day's close. The calls are OTM, and the entire premium consists of time value. The time decay is not very high, and does not quite benefit the writer.
The outlook on Satyam appears somewhat uncertain. While the stock appears somewhat positive, its volatility has fallen sharply. The problem is that these factors have opposite effects on the call value; the positive outlook on the stock will push up call value, while the low historical vols will pull down the call value. Dealers may, hence, refrain from taking fresh positions in the options for now.
Infosys continued its uptick in the spot market, and so did its calls in the derivatives segment. The March 4000 calls clocked the highest volumes on the stock, with 155 contracts.
While the immediate outlook on the stock appears somewhat positive, the uptick is likely to be capped near the present levels. Dealers who want to bet on the stock reversing direction can consider writing the March 4000 calls, which are currently ATM. Dealers beware that the calls will loose considerable value should the stock continue to risen from the current levels. Keeping stop-buy limits for the short call position would, thus, help.
Index options: The spot index continued to remain volatile with the intra-day price range of 20 points. The March 1200 calls on Nifty clocked the highest volumes in this segment with 340 contracts.
The outlook on the market appears to be turning positive. Dealers can, hence, consider buying the March 1200 calls, which cost 16 points at the day's close. The calls are OTM, and the entire premium consists of time value. The option buyer should, however, note that the time decay is very high, and works against the long position.
Follow-up: Dealers who hold long and short positions on the March 300 calls on Satyam can hold their positions for now, with position limits.
The outlook on Reliance continues to remain negative. Dealers can, hence, carry their short position on the March 320 and 340 calls.
With the uptick on Infosys likely to be capped from the current levels, dealers who are long on the March 3800 calls can reverse their positions and take profits.
Dealers who are short on the March 1200 calls on Nifty can hold their position with stop-buy limits.
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