The Hindu Business Line : Go long on Nifty October futures

After starting the week on promising note, the Nifty future faced stiff resistance at 5230 levels and witnessed heightened volatility, particularly on Thursday and Friday.

It closed the week at 5192.2 against the previous week’s 5037.6 — a gain of about three per cent. Nifty future now commands a premium of 6.35 points, though it moved into discount during intra-day trading (almost on all days) last week.

There was smooth accumulation on the open interest front also. Open interest, which had surpassed previous high (on July 28 at Rs 1,02,077 crore) on September 27 at Rs 1,06,018 crore, improved to Rs 85,359 crore from last week’s Rs 73,896 crore.

Interestingly, counters such as Unitech, Nagarjuna Fertilisers and NTPC, which saw huge accumulation, witnessed sharp shedding on Friday.

Reliance Energy, RNRL and Reliance Industries also saw a decline in open interest positions.

Outlook: As mentioned earlier, as long as the Nifty future stays above its crucial support of 4760, there is no threat to the bull party. Nifty future faces minor support at 5100 while there is stiff resistance around 5230 levels. Last week, though it moved above the 5230 level comfortably, it could not sustain at those levels and ended rather weakly.

Recommendation

We expect the Nifty to begin the week on a positive note. Investors can consider going long on October futures keeping the stop loss at 5100. Trail the Nifty future so as to maximise profits, in case it opens well above Friday’s close. This recommendation is for a slightly longer period. Hold the position till expiry.

The stop loss position is recommended quite far away from current closing levels, as we expect wild swings for the market. So, this recommendation is valid only for those who are willing to assume risk, as the market is likely to travel on a volatile path. Option-based strategies are not worth considering as options are trading rich due to volatility.

Implied volatility

Put’s implied volatility (IV) increased to 30 per cent from last level of 27 per cent and call IV to 28 per cent (24 per cent). The increase in volatility levels indicates that the heightened level of volatility is in store.

Put/call ratio

Open interest wise put/call ratio increased to 1.54 (1.43) and volume-wide PCR to 1.41 (1.19). This suggests that a lot of calls were written to profit the rich premium levels.

Stock futures

RNRL (Rs 76.85): After witnessing a sharp surge recently, the stock is moving in a range. While it faces a resistance at Rs 95 (the high it touched on Friday),

RNRL faces (long-term) support at Rs 50 level. Investors may also consider buying RNRL October 60 put at Rs 0.90.

Even though the possibility of RNRL touching its support level immediately appears rather weak, the stock may see a decline. Market lot is 7150 units per contract.

FIIs trend

The cumulative FII positions as percentage of gross market positions in the derivative segment as on October 4 was 33.49 per cent.

FIIs indulged in alternate bouts of buying and selling in the F&O market.

They sold about Rs 1,255 crore of index futures on Thursday alone (Friday’s figures are yet to come in).

They now hold index futures of Rs 13,790 crore against last week’s Rs 14,951 crore and stock futures of Rs 32,333 crore (Rs 27,867 crore).

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

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