The Hindu Business Line : Weakness may continue

For the following week also, we expect the weakness to continue in Nifty amid volatile condition as indicators such as put/call ratio, implied volatility and cost-of-carry pointing towards that.

Also, the expiry of September derivatives contracts will add to the choppiness. FIIs too — despite being net buyers in spot market — were net sellers in the F&O segment, especially in Nifty futures. The Nifty (spot) may go up to the 2500 level, if it sustains at current level. On the other hand, if it dips below 2455 level, then it could touch 2435-25 levels and may even test 2410-05 levels.

Strategy: Investors may consider shorting the Nifty if it dips below the 2455 levels. Investors' may keep the stop loss at that point or day's high at the time of entering the deal.

However, the expiry of September contracts may push the market into volatile zone. Hence, trading with strict stop-loss will ensure in minimising risks.

Investors may also consider bear put spread strategy by buying 2500 put option @ Rs 40.45 and selling 2410 strike @ Rs 6. If the Nifty closes below 2410 on the expiration date, then the investor could take maximum profits. However, if it increases above the 2500 at the expiration date, then the investor may face a maximum loss potential of about Rs 3,500.

The benefit of this strategy is that risk never exceeds the net investment of buying and selling put options simultaneously. This strategy is considered moderately bearish because the sale of a put to reduce his/her risk while still positioning for a decent profit should the stock price moves below the lower put option strike price.

Volatility view: The implied volatility witnessed a sharp divergent trend. While the puts implied volatility dipped to as low as 6 per cent against the previous week levels of 20 per cent, calls IV jumped to 34 per cent from last week levels of 15 per cent. The calls IV jumped sharply as a lot of squaring up took place when the market dipped sharply. The annualised volatility also increased to 22.30 per cent.

Put/call ratio: Open Interest put/call ratio decreased to 1.82 from previous week levels of 2.08 while volume-wise put/call ratio increased to 1.49 (1.01). The firmness in OI ratios also indicates a negative picture.

(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