The Hindu Business Line : Nifty: Decisive direction soon

The sudden reversal in the bull rally last week pushed the Nifty Index down by 5.3 per cent. The Nifty November future also closed with sharp losses but at a premium of about 11 points to the spot close. The Nifty December future, however, ended at a discount of about two points to the spot close.

Rollover of positions was modest at 22 per cent, capturing the cautious mood of the market. However, most of the short positions were covered during the Friday rally.

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

Attention shifted away from momentum counters as some of the counters’ OI positions reached the 95 per cent limit of the market-wide positions and a few others lost sheen due to sharp corrections in stock prices.

Follow-up

As expected last week, the Nifty future was stuck in 5600-6000 range last week. We had suggested two strategies (a) Short straddle by selling 6000 call and 5700 put, and (b) consider going short on Nifty future with stop loss at 6025.

The former strategy would have provided a decent profit considering the opening and closing figures of the options, while it would have been a windfall profit for those who chose the second strategy.

Outlook

The Nifty future is at a critical stage and we expect the Nifty future to take a decisive direction soon i.e. either up or down.

This being settlement week, the intra-day volatility can be expected to be high. While it faces strong support at 5565 level, the Nifty future has to move past the 5785-90 level to regain the bullish momentum.

Recommendation

We advise investors to consider strangle strategy by buying Nifty December 6000 call and Nifty 5500 put.

These options are currently quoting at a premium of Rs 105.15 and Rs 222.10, respectively.

Implied volatility

Implied volatility (IV) of puts and calls jumped sharply to 40 per cent.

While puts IV increased to 41 per cent from 35 per cent last week, calls IV jumped to 40 per cent (36 per cent). Since puts IV is slightly higher than calls, the sentiment has turned marginally negative.

Put/call ratio

Open interest wise put/call ratio (PCR) dipped to 0.92 (1.18) while volume-wise PCR to 0.77 (0.96). This indicates that several traders stayed away from market.

Stock futures

MTNL: We had advised investors to consider going long on this stock. It however, turned weak and for those who had followed our advice, the position would have been negative.

FIIs trend

The cumulative FII positions as percentage of total market positions on the derivative segment as on November 22 was 33.59 per cent (34.10 per cent).

FIIs indulged in heavy selling in F&O segment. They now hold index futures worth Rs 18,216 crore (improved from last week’s Rs 16,089.78 crore) and stock futures Rs 44,346 crore (Rs 43,028.61 crore). This indicates that they have rolled over short position on index futures.

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

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