Power of Stock Futures On Lean Trading Days

5th of July 2010. It was one of the most tiring days in trade. There was hardly any movement in global indices, and Indian markets were no exception. Primary reason for weak trading volumes today was the fact that traders stayed on the sidelines ahead of  US Independence Day holiday. All markets were looking for direction to trade, be it Asian markets or European markets.

As for Indian markets, there was an added baggage of nation-wide Bundh call by opposition parties. With means of transport getting badly effected, there was hardly any trading volume on the bourses as traders stayed away. For the entire day Nifty traded in a super tight range of 27 points with day high of 5253 and low of 5226. For day traders, how much more boring than this can things get?

However if you were trading Stock Futures, even such a boring day can be rewarding. The reason is simple- the power of leverage, as explained in my last post on 04July2010 titled "Power of Trading Stock Futures : Bajaj Hindustan". To clarify the point , allow me to highlight the following trades which I had recommended to members at http://www.stockezy.com/   :-

1. Tech Mahindra July Futures : One lot was bought at 736 on last trading session, ie 02July2010. Today the scrip reached the recommended target of 760, thereby giving profit of Rs 24/- per share. Since the lot size is 250, total profit = 24x250= Rs 6000/- against an investment of Rs 37000/-. Thus return on investment in two trading sessions = 16.2%.
2. Balrampur Chini July Futures: In last trading session, one lot of Balrampur Chini July Futures was also bought at 84.1 with a target of 84.45. Today in first half hour of trading the scrip achieved its target price, thereby giving a profit of Rs 1.35 per share. The lot size being 4000, this position attained total profit = 1.35x4000= Rs 5400/- against an investment of Rs 67000/-. Thus return on investment in two trading sessions = 8%.

Hence from two positions with total investment of  Rs 104000/- (67000+37000), total profit obtained was Rs 11400/-(6000+5400). This translates to a return of 11%  in two trading sessions. Remember today was a lean trading day, but the power of leverage in Stock Futures can make any trading day rewarding.