The Hindu Business Line : Nifty may trade in ranges

The NSE Nifty Index made a four per cent gain last week. The Nifty November future closed with gains and at a premium of about six points to the spot close. Nifty December futures, however, ended at a discount of about eight points to the spot close indicating that a lot of short positions were added expecting some cool-off.

Though there was smooth accumulation in the overall open interest (OI) position, Nifty November future saw a sharp decline in open interest.

OI declined from 3,13,23,550 contracts to 2,62,71,650 contracts, indicating that positions were squared off due to the sharp rise in the index value.

Attention shifted to momentum counters such as RNRL, MRPL, Neyveli Lignite, Essar Oil, GMR Infra and Petronet LNG.

Overall, the trading volume was muted.

Outlook

The Nifty future is at critical stage and we expect it to move in a narrow band.

As the recent run-up has been quite sharp we expect some kind of moderation in the momentum and in the process profit-booking could happen.

However, the overall underlying bullish undertone still remains as long as Nifty future remains above 5600 levels. It faces stiff resistance at 6005-6015 levels.

Recommendation

We present two strategies for consideration. Consider writing the Nifty 6000 call and Nifty 5700 put as we expect the Nifty to be stuck in that range for few days.

This strategy (shorting straddle) is a risky as one expects that the index will not move up or down significantly.

Because of this, the short straddle should be employed only by seasoned traders. The maximum profit is the amount of premium collected by writing the options. The call and put is currently quoting at 111.10 and 79.35, respectively.

Alternatively, the investor can also consider going short on Nifty futures keeping the stop loss at 6025. This strategy is valid only for a maximum of two days.

Implied volatility

The implied volatility (IV) of puts and calls presented a divergent view.

While puts IV dipped marginally to 35 per cent (37 per cent last week), calls IV jumped to 36 per cent (31 per cent).

The jump in calls IV indicates that call writing has increased.

Put/call ratio

Open interest wise put/call ratio (PCR) improved to 1.18 (1.13) while volume-wise PCR declined to 0.96 (1.22). This indicates that a lot of calls were squared off as the market went up quite sharply. Decline in volume PCR indicates low level of activity.

Stock futures

MTNL (Rs 184.20): The stock is at crucial stage. After suffering heavily, it started to recover.

It touched a low of Rs 155 and recovered to current levels. We expect the momentum to sustain. On moving past the Rs 190-195 level, it can go up to Rs 228-230 level. Consider going long on the counter keeping the stop loss at Rs 176. Market lot for MTNL is 1,600 units per contract.

FIIs trend

The cumulative FII positions as percentage of total market positions on the derivative segment as on November 15 was at 34.10 per cent.

FIIs indulged alternate bouts of buying and selling in F&O segment. They now hold index futures worth Rs 16,089.78 crore (declined from last week’s Rs 17,845.7 crore) and stock futures Rs 43,028.61 crore (Rs 38,193.39 crore).

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

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