The Hindu Business Line : Upward bias in Nifty

NIFTY outlook: Last week, we had expected a narrow movement in Nifty with negative bias. Though the Nifty opened the week on negative note, it regained strength and flared to reach its new all-time high close levels.

Expecting the Nifty to remain in the range of 2300-2380, we had advised investors to short strangle by selling 2380 calls @ Rs 31.25 and 2300 puts @ Rs 37.55. However, the strategy, which could give positive returns only if the index remains in the marked zone, would have generated negative returns as the Nifty zoom past the 2380-mark. As of Friday's close, the loss could be in the range of about Rs 1,000 considering opening price of the respective call and put option price at Rs 25 and Rs 40. On Friday the respective call and put options closed at Rs 60 and Rs 15.

For the ensuing week, the Nifty may head northwards with sentiment indicators such as put/call ratio and implied volatilities present a positive bias.

If the Nifty is able to pierce the 2425-mark, then it could touch 2345-2460 levels. On the other hand, if it fails to sustain 2385, then it could see a drastic fall. In that event, it finds a support at 2355 and then at 2325.

Strategy: Expecting a positive outbreak, we advise investors to go long on Nifty futures, if the Nifty (spot) breaks 2425 keeping the stop-loss at this level.

However, the index can swing quickly into negative zone due to firm oil prices.

Volatility view: The implied volatility of puts and calls moved in opposite direction. While the puts IV declined sharply to 17 per cent against last week level of 22 per cent, calls IV inched up marginally to 14 per cent (13 per cent).

The decline in puts IV indicate a limited downside while the marginal increase in calls IV paints a rosy picture as there was lot of activity on the calls side even when the Nifty ruling at higher levels.

The annualised volatility remained flat at 20.50 per cent against the previous week figure of 20.24 per cent. With the annualised volatility remaining above the implied volatility levels, the chance of Nifty remaining in volatile zone is on the higher side.

Put/call ratio: Open Interest put/call ratio increased to 1.59 from previous week's 1.44. The volume-wise put/call ratio, however, remained flat at 1.08 (1.09). The increase in open interest PCR indicates that a lot of calls open positions were closed on account of smart gain in Nifty.

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

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page