Investing in the Indian technology sector is a compelling choice with the global outsourcing demands, digital transformation, and advancements in automation. The Indian IT sector is one of the major contributors to the Indian economy and contributes 8% of the GDP, along with a significant 55% market share of the global outsourcing market. In this blog, we will explore how one can maximise the gains from the results of the tech giants.
Strategic ways to maximise the gains from the upcoming results
Some of the strategies that can be employed to maximise the gains from the upcoming results of tech giants’ stocks are:
Utilising options strategies
Options strategies can be an appealing way of making gains from the increased volatility during upcoming results, without having to make predictions on the price direction. Traders can use options strategies such as a straddle, which involves buying both call and put options with the same strike price, and is usually entered a few days before earnings announcements, with the strikes being selected near the current stock price.
Another strategy is strangles, where traders buy out-of-the-money calls and puts with strikes above and below the current price. These positions are closed out shortly before the results announcement in order to minimise risk. A long straddle is considered one of the best market-neutral trading strategies in the Indian market during the results season of tech giants.
Pre-earnings momentum trading
Pre-earnings momentum trading strategy involves exploiting price changes a few days before the earnings announcement. In some cases, the stock may have a directional bias depending on sector performance as well as analyst estimates. To trade with this strategy, the trader should pay attention to relative strength indicators and analyst predictions before the earnings announcement.
During the earnings season, it is deemed right to reduce the size of the existing positions, place stop losses, and book profits on most of the positions before the earnings announcement.
Post-earnings gap trading
Gap trading is trading based on the difference between the previous closing price and the next opening price of a stock after the results announcements. This strategy is best exploited if gaps are large and have a clear directional strength, with trades preferably completed during the initial market hours.
Monitoring volume in the pre-market session is important, as high volume indicates strong institutional interest that helps to validate the gap’s strength and reduces the probability of a false breakout.
Diligent risk management
Given the higher volatility of the results season, it is important to exercise strict control over emotions and finances. Traders should restrict each trade to 1 – 2% of total investment and limit standard position sizes precisely on days of earnings announcements.
Traders should keep an overall conservative portfolio exposure to results-related trades and keep a large chunk of their capital safely sidelined or in more conservative assets. Sticking strictly to a predetermined trading plan is one important strategy in maximising profits and preventing the possibility of having all accumulated gains wiped out by one volatile event.
Conclusion
The stocks of Indian tech giants are an attractive investment opportunity because of their growth potential, demand by global enterprises, and innovation in technological areas such as artificial intelligence and cloud computing. Through strategic analysis of upcoming results, pre-earnings and post-earnings trading strategies, smart options plays, and a strict risk management process, traders can optimise their gains from the results of tech giants.
Additionally, the simplicity that online brokerage platforms offer to open a free demat account in India helps traders easily enter the Indian stock markets and capitalise on the results of tech giants.
