The Hindu Business Line : Nifty may hover around 4200-level

Critical factors
Nifty futures still at discount to Nifty spot.
Implied volatility dips for puts but jumps for calls.
Trading volumes remained moderate.

Nifty opened on a strong note last week but turned weak towards the end. However, it finished on a positive note, at 4187.40 against the previous week's close of 4183.50. Trading volumes were moderate.

Open interest positions, which touched a nine-month high a couple of weeks ago at Rs 68,428 crore, stood at Rs 60,356 crore against the previous week's Rs 53,770 crore. Open positions, however, dipped on Friday against Thursday's position of Rs 61,187 crore, indicating some nervousness in the market.

We had presented a positive outlook on Nifty futures and had advised investors to go long on the index.

The long position would have fetched handsome returns as Nifty futures reached our targeted level of 4225-35 points.

Nifty futures outlook remains positive as long as it rules above 4130. Only a dip below 4025-50 could turn the undertone negative.

However, it appears to face strong resistance at 4230-35 levels. A fall below the support level has the potential to take Nifty to a low of 3830.

Expecting the markets to stay put at current levels, investors who are willing to risk can opt for a short-straddle strategy.

A short straddle is a combination of writing uncovered calls (bearish) and writing uncovered puts (bullish).

Investors may consider going short on Nifty 4200-strike of calls and a puts that would fetch them about Rs 10,600 per contract.

The short straddle strategy could have serious financial results if Nifty futures move substantially away from the strike price.

Put/call ratio:

Open interest put/call ratio decreased to 1.71 against the previous week's close of 1.8 while volume-wise PCR fell to 1.3 (1.7).

The relative firmness of the OI put/call ratio indicates that many calls positions were squared off when the market went up sharply last week.

Implied volatility:

IV displayed a divergent trend for calls and puts.

While puts IV dipped to 19 per cent (20 per cent), calls IV jumped to 45 per cent (23 per cent).

The jump in calls IV indicates lot of call writing activity, which presents a negative outlook.

Backwardation

The near-month Nifty futures, which is trading in a premium for last couple of weeks, again dipped into sharp discount.

Nifty February futures is now trailing the spot Nifty by about 10 points.

This indicates that lot of short positions (added when the market sizzled in last week).

Stock follow-up

SBI (Rs 1,181): We had presented a negative look for the stock with resistance at Rs 1,210 and support at Rs 1,160. We had advised investors to go short on the counter if it dips below Rs 1,160. However, contrary to our expectation, the stock was firm. We still stand by our recommendation and advise investors to consider going short on March futures if it dips below the Rs 1,160-level.

IFCI (Rs 29.10): The short-term outlook appears to have turned negative. The stock finds support at Rs 27 and resistance at Rs 32. A dip below support could take it to a low of Rs 21-23. However, we advice investors to be cautious, this recommendation is only for those who are willing to take risk, as the stock could bounce back sharply. Also, market lot of the stock is 31500 contracts per unit. Market lot will be revised downwards to 7875 contracts from February 23.

Punj Lloyd (Rs 1,066.05): The stock is delicately poised. While a drop below Rs 1,046-level could weaken it to Rs 1,020-22 and even to Rs 995-1,000, a move past Rs 1,075 could take it to a high of Rs 1,092.

Betting on a positive breakout, we advise investors to go long if the stock surges above Rs, 1075 with a stop-loss at this level.

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

More Stories on : Derivatives Markets | Outlook | F & O Outlook

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