Don`t invert positions

DERIVATIVES

This appears unsustainable but it also makes it difficult to pick potential winners and losers. In fact, picking shorts with any degree of certainty is impossible given the current breadth.

Here are some suggestions:

1) Bank stocks were lead indicators during the bearish phase that started after March 10. A strong overall market recovery will probably lead to the same bank stocks turning sharply bullish and acting as lead indicators all over again. We do expect a rally before end-April. Hence it may be worth going long in industry bellwethers such as SBI, BoB, ICICI and Andhra Bank.

2) Auto shares have rallied in the last week - Bajaj, Tata Motors and Maruti look as though they could continue the run up. That's another sector that might repay a bull.

3) Software stocks appear to be getting very bullish. This segment may move up independent of the rest of the market. However rather than Wipro and Infosys which tend to lead most IT rallies, the big movers this time are likely to be HCL Technologies and Satyam. Both look very bullish and worth long futures positions. TCS also seems quite bullish in terms of price-trend but it's short on volume.

4) Two other F&O stocks that seem likely to outperform the bullish trend are Bhel and Hindalco.

So much for futures positions. In the options section, Satyam looks a good bet. A bull-spread with long 430c (9.9) versus short 440c (6.1) costs almost 3 and it could pay a maximum of 7. A wider bull-spread is also possible with a long 430c and short 450c (4.25).

Maruti also offers a fairly good options return-risk ratio on a standard bull-spread. A long 440c (13.7) versus short 460c (7) costs 6.7 and it could pay a maximum of 13.3.

Tata Motors also has excellent ratios. With the spot price at about 435, the long 440c (11.4) versus short 460c (5.55) offers a potential maximum return of 14.