The Hindu Business Line : Nifty may start 2006 on positive note

LAST week, we had indicated that Nifty might see a volatile trend. We had indicated resistance for the Nifty (spot) at 2845-50 levels and support at 2770-75 levels.

We had also said that Nifty might see a downward pressure. In line with our expectation, the Nifty witnessed volatile trend and began on weak note.

Expecting a bearish outlook we had advised investors to consider: a) Shorting the Nifty futures keeping the stop loss at 2840 (spot price levels) or at day's high at the time of entering the deal; and b) Put calendar spread strategy by shorting 2750 December puts at Rs 14.10 and buying the same strike of January contracts at Rs 62.15.

The former strategy (shorting Nifty futures) would have yielded a profit of Rs 4,000 considering the Nifty futures opening of 2774 and the intra-week low of 2728 (on Tuesday).

However, the calendar-spread strategy could have pinched investors to the extent of Rs 2,000 considering the opening and closing prices of 2750 puts.

For the following week, we expect the Nifty to begin on firm note.

If the Nifty sustains current levels, then it may touch 2890-2900 levels.

On the other hand, if it fails to sustain the current levels, it finds

the immediate support at 2750 and the next support at 2650-55 levels.

Expecting a bullish beginning we advice investors to go long on Nifty futures keeping the stop-loss at 2800 (for spot) levels.

Investors may also consider buying January 2900 calls @ of Rs 33.30. Here the maximum loss could be the premium paid i.e. Rs 3,300.

Volatility view: The implied volatility for both puts and calls moved remained firm around the previous week levels; while calls IV increased marginally to 21 per cent against last week levels of 20 per cent, puts IV remained steadfast at 22 per cent (22 per cent).

The firmness in volatility levels indicates that options are pricey. Also it indicates that Nifty is unable to make clear direction. Further, with the annualised volatility increasing to 24.22 per cent (23.01 per cent) indicates that road ahead for the Nifty is not smooth.

Put/call ratio: Open interest put/call ratio remained firm around 1.56 from previous week levels, while volume-wise PCR increased to 1.14 against the previous week level of (0.83).

The firmness in open interests PCR could be attributed to: a) high level volatile condition that prevailed last week; b) the expiry of December contracts last week; and c) same level churning of both puts and calls from December month contracts to January series.

Backwardation: The backwardation has widened further during the week.

While the Nifty futures closed the week at 2820.8, the Nifty spot ended at 2836.25, i.e. a discount of about 16 points.

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

More Stories on : Technical Analysis | Derivatives Markets

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