The Hindu Business Line : Wobbly Nifty in the offing

Critical factors
Calls IV increased even as puts IV declined marginally.
A dip below 3440 may take the Nifty to 3395-3400 levels.
Nifty April futures premium widened further this week.

Last week, we had indicated a negative outlook for the Nifty; but quite contrary to our expectations, the Nifty scaled a new peak during the weak and registered smart gains on week-on-week basis.

follow-up

We had advised investors to go short on Nifty; those who had done so on Nifty would have been hit. We had also advised to investor to consider put ratio backspread strategy by selling 3400-strike at Rs 94.95 and buying two 3300-strike@ of Rs 52.9. The strategy is now at no loss/no gain stage considering the opening price of the puts (Rs 85 and Rs 40) and the closing prices (Rs 47 and Rs 22) respectively. Those who adopted this strategy may continue to do so.

Outlook

This week, we expect the Nifty to remain volatile as sentiment indicators such as implied volatility and put/call ratio point towards that. A dip below 3440-35 levels could take the Nifty to 3400-3395 levels. A further dip may take the Nifty to 3300 levels. On the other hand, if the Nifty able to pierce 3520-25 levels, it could test the 3600-mark.

Strategy

Investors may consider bull-call spread strategy; this can be initiated by selling the 3550-strike calls at Rs 31.70 and buying the 3500-strike at Rs 49.50 with a net debit of Rs 17.80.

The implied volatility for puts declined, while that of calls increased marginally to 21 per cent (19 per cent). With the implied volatility levels hovering around the previous week's levels and marginally higher than annualised volatility level, we can expect a volatile trend on Nifty.

The annualised volatility on Nifty moved higher at 20.73 per cent (19.40 per cent).

Put/call ratio

Open interest put/call ratio increased to 1.57 (1.19) while volume-wise PCR to 1.2 (1). The increase in open interest levels also indicates the chance of Nifty heading for a high degree of volatility.

Lots of open positions were created on the put side on Friday when the market slumped sharply in a volatile trading.

Backwardation

The Nifty April contracts maintain its premium; it now widened to about four points with Nifty spot closing at 3454.8 against the Nifty April futures close of 3458.15.

Securities in ban period

The NSE has banned the trading in the securities of Nagarjuna Fertilizers and Titan Industries as they have crossed the stipulated 95 per cent market-wide position limit.

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

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