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K.S. Badri Narayanan

THERE was no respite from a bear hammering for the Nifty, which witnessed another week of turmoil on the back of heavy FII selling.

Last week, we had indicated that the Nifty was at a crucial junction and had stated that either gain or loss - the swing could be wide.

We had said that in case of positive trend, the Nifty could go to the 2470 level and in case of negative sentiment, it could dip to the 2300 level.

The Nifty almost came close to the 2300 level.

Expecting wild swing, we had advised investors to consider long straddle by buying Nifty Nov 2350 puts @ Rs 41.30 and Nov 2550 calls @ Rs 34.95. The strategy would have earned a decent profit of Rs 1500 (considering the Monday's opening price of Rs 42 (puts) and Rs 39 (calls) and the closing price of Rs 91 and Rs 4.35 on Friday respectively).

For the ensuing week, we expect the weak trend to persist on the back of sentiment indicators such as put/call ratio and implied volatility.

If the Nifty is unable to sustain current levels it could dip to 2185-75 levels.

On the other hand, if the Nifty is able to breach the 2355-60 level, it can reach 2420-25 levels. However, the undertone remains bearish.

Strategy: Expecting a down trend we advise investors to go short on Nifty keeping the stop-loss at current level or day's high at the time of entering the market.

Since the Nifty is set to remain volatile, we advise investors to tread cautiously.

Volatility view: The implied volatility remained firm around the previous week levels.

While the puts implied volatility was firm at 26 per cent against the previous week levels of 27 per cent, the IV of calls moved up to 29 per cent (25 per cent).

The firmness in volatility above 25 per cent indicates uncertainty in the market.

Moreover, the calls IV dipped as low as about 3 per cent when the Nifty plummeted heavily on Thursday.

The gain suggests that there could be a short reversal in trend.

The annualised volatility has also increased to 30.13 per cent (27.46 per cent).

This also indicates the higher chance of Nifty being volatile.

Put/call ratio: Open interest put/call ratio jumped to 1.7 (1.14) and volume-wise put/call ratio to 0.95 (1.04).

The volume PCR touched a high of 1.52 on Thursday indicating a lot of squaring up activities.

The OI put/call ratio, which saw a decline from well over 2-point mark a few weeks back, improved sharply.

The gain in open interest PCR indicates that lots of puts position were created or rolled over in anticipation of further fall in the Nifty.

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

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