The Hindu Business Line : Sideways movement seen for Nifty future

Thanks to a sharp Friday rally, the Nifty September future finished marginally higher at 4370.55 against its previous week’s close of 4320.15. This, however, came on the back of high volatility, with Nifty futures touching a low of 4209 points intra-week.

The Nifty September future closed at 4364, marking a premium of four points over the spot Nifty’s close. But despite all the intra-week volatility, both Nifty and the overall market enjoyed a better rollover of open interest positions as compared with last month

Follow-up

Last week, we had presented two strategies: 1) Shorting Nifty future and 2) Short straddle strategy using Nifty September 4400 strikes. While the former would have yielded handsome profits, the latter is marginally in the money.

As advised last week, traders can hold on to the straddle strategy for few more days.

Outlook

There was no let up in selling pressure last week, though the Nifty future recovered strongly on Friday. We expect the Nifty future to move in a narrow range.

It finds strong support around 4200 level and faces immediate resistance at 4450. A move above 4450 has the potential to take Nifty futures to a level of 4550.

On the other hand, a dip below 4200 has the potential to take it to a low of 3800 levels, though before that there is a minor support at around 4000 levels. Overall, we expect the Nifty future to move in 4300-4500 range.

Critical factors

a) Nifty 4300 September put and 4500 September call were the most active. This indicates the possible trading range for the Nifty in the ensuing days.

b) The Nifty volatility index or India VIX - the fear gauge which captures the immediate expected volatility of the market, slipped to 31.67, indicating that traders are now less pessimistic on the overall market.

Recommendation

Since we expect markets to move sideways, a short strangle strategy can be considered by traders. This can be initiated by selling Nifty September 4600 call, which ended on Friday at 52.20 and the Nifty September 4000 put, which closed at 109.35.

This strategy is best suited when one is bearish on volatility and think that the market prices will remain stable for quite sometime.

A short strangle is similar to short straddle except that the strike prices are further apart. As a result of which, it is a relatively low-risk and low-return strategy.

Stock futures

Reliance Industries (Rs 2,136.2): Despite a sharp recovery on Friday, we hold a negative outlook on the stock. The stock faces resistance at 2195 and support at 2055. A move above the resistance could take it to 2265 level, while a fall below 2055 can take the stock price to a low of 1950.

For the coming week, the chances of the stock touching its support level appear bright.

We advise traders to go short on Reliance future with a stop-loss at 2195. Traders, however, should adjust the stop-loss progressively so as to maximise profits.

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on August 28 was 41.83 per cent.

The FII holding, after quite a few weeks have sprung back to the above 40 per cent level, suggesting that the proprietary traders, who emerged strong in August series, may have allowed their position to expire this settlement.

FIIs remained net buyers, albeit marginally during the settlement week. They now hold index futures worth Rs 12,906.41 crore (Rs 15,089.46 crore) and stock futures worth Rs 16,055.96 crore (Rs 17,780.15 crore).

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