The Hindu Business Line : Nifty future may face strong resistance

Volatility was at its best last week as the market swung between extreme ends the whole of last week. Nifty September future finished at 4283.10, just above the previous week’s close of 4245.8, thanks to the smart rally on Friday. But amidst all this, a point worth noting is that despite entering into the settlement week for September contracts, the premium on Nifty September future has widened to about 38 points. The rollover figures so far have been rather subdued at about 17 per cent, in spite of the positive close on Friday.

Follow-up

We had presented two strategies:

1) One going short on Nifty future keeping the stop-loss at 4450 and 2) Buying 4200 put. Both the strategies would have yielded decent profits as the market moved in line with our outlook.

2) SBI: We had advised investors to go short on SBI keeping the stop-loss at 1550 with a target of 1350-75. This would have been achieved on Monday itself.

Outlook

Despite sharp recovery on Friday, we feel the possibility of the market breaking its resistance at 4450 is rather remote. As has been mentioned in this column previously, Nifty has a strong support 3800-50.

In the coming week, even if the Nifty future begins on a positive note, we suspect the Nifty future may struggle to move past its resistance. There however could be intense volatility as the September derivative contracts are due for expiry this week. Overall, we expect the Nifty September future to move in 3800-4350 range.

Recommendation

We are presenting two strategies for traders.

1) Traders can go short on Nifty future keeping the stop-loss at 4450. 2) Another strategy could be short straddle which can be initiated by selling the Nifty 4300 call and put. Since we expect the Nifty to be stuck in the 3800-4350 range, this could be the best strategy.

Short strangle can be used when traders feels that the market is likely to move in a narrow range.

However, both these strategies are only for traders with a high-risk appetite as the market tends to witness extreme volatility in the settlement week.

Besides, writing options may require huge margin money requirements.

Stock futures

DLF 426.5

We have a negative outlook on the stock. While the stock faces a resistance at 485, it finds immediate support at current levels.

Any dip below the current level could take the stock to 370. We expect the stock to test its support and hence advice traders to go short on DLF October future, with a stop-loss at 475. Risk-averse traders however can stay away.

FIIs trend

The cumulative FII positions as percentage of the total gross market position on the derivative segment as on September 15 was 35.58 per cent. This once again indicates the higher level participation of local traders, particularly the proprietary segment.

Foreign institutional investors resorted to heavy buying on Friday. They now hold index futures worth Rs 15,191.58 crore (Rs 13,378.69 crore) and stock futures worth Rs 21,852.1 crore (Rs 20,478.61 crore).

Their holding on index options stood higher at Rs 24,576.07 crore (Rs 22,544.75 crore).

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