The Hindu Business Line : Weakening trend in Nifty futures

The sudden and sharp fall on Friday added to the already weakening trend in Nifty futures, which ended the week 3851 points against its previous week’s close of 3998. But what’s worth noting is that the Friday fall came with a huge accumulation of short positions not just in Nifty futures but in many frontline stocks such as Reliance Industries, Tata Steel, NTPC and L&T as well. The premium of Nifty October future, which was about 13 points last week, has now widened to 32.7 points, mainly on account of heavy selling in cash segment.

Follow-up

We had presented the following ‘conditional’ strategies in Nifty: a) Going short on Nifty future (only) if it dips below 3950 with a stop-loss at 3980; and b) Going long on Nifty future if it moves past 4095 with a stop-loss at 4000. While the second situation did not arise, the first strategy would have yielded handsome gains as the Nifty future witnessed a steep fall.

SBI: We had presented negative outlook on the stock with a stop-loss at 1475. Though it was heading for our targeted level of 1315 on Monday itself, it failed to hit that level and bounced back sharply after triggering the stop-loss level. However, we still believe that SBI could touch our expected levels.

Outlook

With Nifty future closing below 4000 points for the last five days, it may now be very difficult for it to breach the 4050 levels. Nifty now rules around its psychological support level of 3850; any further fall from hereon can take it to 3525 levels. That said, there however is a minor support at 3765 in between. But, if Nifty does manage to recover from the current levels, it can go up to only 4050. Any further upside from that level can even push it to 4450 level, its important resistance zone. For the coming week, we expect Nifty future to begin on a positive note. However, it may later on struggle to sustain the initial gains. Overall, Nifty future is likely to move in a narrow band of 3750-4050.

Recommendation

With the intra-day volatility ruling at higher levels, risk-averse traders may be better off staying away from the markets. As for the rest, here is this week’s strategy. Since we expect the Nifty future to move in 3750-4050 range, traders can consider short straddle by selling 4000-strikes of call and puts, which ended on Friday at Rs 94 and Rs 253 respectively. Short straddles are risky strategy as the maximum profit in this strategy is limited to the premium collected, while the risk is unlimited. Besides, writing options involves huge margin, particularly during highly volatile conditions such as now.

Stock futures

Infosys (1392)

As the company is coming out with its quarterly numbers this week, the stock is set to witness sharp swing in share price movement. Traders can consider a long strangle on the stock. This can be initiated by buying 1500 Infosys call and 1320 put, which are currently quoting at Rs 32 and Rs 30 respectively. While the maximum loss is limited to the premium paid, the profit in this strategy is unlimited, if the share price makes the desired wild swing in some direction.

FIIs trend

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on October1 was 36.68 per cent. Foreign institutional investors have been offloading quite heavily, particularly in index futures, throughout last week. They now hold index futures worth Rs 9,968.52 crore (Rs 8,969.7 crore) and stock futures worth Rs 14,692.25 crore (Rs 14,583.04 crore).Their holding in index options stood higher at Rs 18,639.66 crore (Rs 16,303.8 crore).

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