Date:01/02/2005 URL: http://www.thehindubusinessline.com/2005/02/01/stories/2005020101271500.htm

Back Short-term reversal likely in PNB, Nifty

B. Venkatesh

THE following strategies are based on Monday's trading in the spot and the derivatives segment on the NSE.

The strategy takes advantage of possible short-term price reversal and is, hence, structured to capture the counter-trend. The position has to be traded with protective stops to control the market risk.

The recommendation is valid for only three trading sessions from the date of initiation. If the profits are not taken or the position is not stopped, the contracts have to be closed at the end of the trading horizon.

PNB: Sell February futures after the stock trades below Rs 411 in the spot market. The downside price target is Rs 386.

Initiate the position with spot-market-stop-loss at Rs 415 or at the day's high at the time the position is initiated, whichever is higher. Thereafter, the position has to be traded with trailing stops. The margin on the futures position is approximately 20 per cent of the contract value. The minimum order size is 1,200 units.

Setting up alternative strategies based on options is not optimal. The reason is that the trading horizon is too short for the option delta to generate attractive payoffs.

Nifty: Sell Nifty February futures after the spot index trades below 2057. The downside target is 2018. Initiate the position with spot-market-stop-loss at 2066 or at the day's high at the time the position is initiated, whichever is higher.

The position has to be traded with trailing stops. The margin on the futures position is approximately 10 per cent of the contract value. The minimum order size is 200 units.

As with PNB, setting up option positions on Nifty will be sub-optimal because of the short trading horizon.

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