The Hindu Business Line : Nifty continues in uncertain terrain

The Nifty swung wildly before ending the week at 4401.45 against previous week’s 4445.20, a drop of about one per cent. The Nifty future closed at 4360.35 (4402.20) a drop of about 0.95 per cent.

Despite the sharp fall, open interest positions saw accumulation. OI positions, which had hit an all-time high of Rs 1,02,077 crore on July 28, were at Rs 80,735 crore against last week’s Rs 72,601 crore.

On the other hand, turnover moderated after surging to Rs 79,996 crore during the previous week, witnessing about an average daily turnover of about Rs 43,000 crore against the previous week’s Rs 55,000 crore. The discount between Nifty future and the Nifty was at a 52-week high on Friday when the gap widened to 60 points intra-day.

Follow-up: Last week, we had advised investors to consider a long straddle strategy by buying into 4400-strikes of call and put on Nifty. We had advised investors to hold the strategy till expiry. Those who are holding positions, can c ontinue to hold. The 4400 Nifty call is currently trading at Rs 96.95 and the put at Rs 135.15.

Outlook

The Nifty future dipped below its crucial support at 4390. Though the bullish undercurrents have abated, the Nifty future has to slide further to confirm the bear grip. To regain bull momentum, the Nifty future has to cross the 4400-mark. On the other hand, a further slide would ensure that the market is in the hands of bears. In that event, Nifty future could test the 4305 and 4165 levels.

Recommendation

We expect the volatile trading to continue this week as well. We advise investors to consider shorting the Nifty future keeping the stop loss at 4440 level. Adjust the stop-loss level trailing the index movement, so as to maximise the profits. Alternatively, Nifty 4400 put, which is currently commanding a premium of Rs 135, can also be considered.

Implied volatility

Put/call ratios jumped sharply, indicating another bout of uncertain week. While the puts IV jumped to 24 per cent against last week’s 19 per cent, calls IV increased to 30 per cent (27 per cent). The increase in calls IV is mainly due to the investors’ willingness to write call options. This indicates a negative sentiment towards market.

Put/call ratio

While volume-wise PCR increased, open interest PCR remained firm around the previous week’s levels. The increase in volume wise PCR is quite significant considering the falling turnover. This indicates that lot of puts were added expecting the market to slide further. Open interest PCR remained stable at 1.4 (1.42).

Backwardation

The Nifty future’s discount widened sharply. The discount, which was close to 60-point mark during intra-day trade on Friday, is now a whopping 40 points as against 43 points last week. This fresh short positions were squared off during the day itself and the chance of further short-covering appears minimal.

Stock futures

SBI (Rs 1,635): The stock is in a crucial stage. While a firm opening could take the stock to Rs 1,700 level, a dip below Rs 1,620 could take to Rs 1,540 and even to Rs 1,450 levels. We feel that this stock is in an overbought position and could take a corrective path. We advised investors to go short on SBI future, in case the stock dips below the Rs 1,620 level, keeping the stop loss at that level. As expected the stock opened on a firm note. However, the Friday meltdown pushed the stock to our targeted level of Rs 650.

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

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