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K.S. Badri Narayanan

As predicted last week, the Nifty January future succumbed to selling pressure. Last week saw heightened intra-day volatility, confusing day-traders.

However, the Nifty January future ended with a premium of about 25 points, on account of heavy selling in the spot market.

Last week, we had advised investors to go short on Nifty future keeping the stop loss at 6350 level.

Those who followed this strategy would have earned a windfall profit, as the Nifty future tested our expected level of 5850.

We had also presented another strategy — shorting straddle with 6200-strike, expecting the Nifty future to move to the 5850-6400 range. Since the Nifty future dipped below 5850, the position turned negative.

With the sharp fall on Friday, the positive outlook for the market has been arrested. To re-enter the bull orbit, Nifty future has to move past the 6350 mark with heightened volumes.

The next support for the Nifty future appears at 5325. A move above 5850 could negate the bear sentiment.

The Nifty future may see a recovery, where it could touch 6020-6050 levels. With sentiment turning weak, investors may consider going short on Nifty February future, keep it open-ended till its expiry and buy Nifty January 6300-call, which is currently quoting at about Rs 20.

Risk-averse investors could stay away from this strategy, as the loss could be unlimited.

Alternatively, investors can also consider buying Nifty 5400 put, which is quoting at Rs 51.

Implied volatility (IV) of puts and calls jumped from previous week’s level. Puts IV increased to 35 per cent (29 per cent) and calls IV to 34 per cent (30 per cent).

The jump in implied volatilities paints a grim picture for day-traders, as market is likely to see volatile trading pattern.

Volume-wide PCR decreased to 1.04 (1.29) and open interest wide PCR to 1.04 (1.16). This suggests that lot of puts positions were squared-off on Friday, when the market slid sharply.

Infosys: Betting on its result, we had advised investors to consider straddle strategy on Infosys with 1710-strike. The position ended the week with strong profits.

ICICI Bank: Last week, we had advised investors to go short on ICICI Bank keeping the stop loss at Rs 1,475. This strategy would have yielded windfall profits.

NTPC: The stock is near its support of Rs 240. While a bounce back from this level could take it to Rs 275, a drop below could take it to Rs 210-200 level. The chance of NTPC recovering appears bright. Investors may consider going long on NTPC future keeping the stop loss at Rs 210-level.

The cumulative FII position as a percentage of gross market positions on the derivative segment is 36.78 per cent, as on January 17 (37.05 per cent on January 10).

FIIs continued their selling last week as well in the F&O segment, particularly on index futures.

However, they remained net buyers in index options, suggesting that they expect volatility.

They now hold index futures worth Rs 27,028 crore (Rs 24,769.30 crore) and stock futures worth Rs 58,699 crore (Rs 57,100.66 crore).

This indicates that they have added fresh short positions on index as well as stock futures.

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

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