The Hindu Business Line : Another volatile swing on the cards for Nifty

The Nifty October future tumbled 14.43 per cent to 3,295 points against its previous week’s close of 3,851.But despite this sharp fall, there has been no let up in short positions both in the index as well as individual stock futures, particularly in frontline stocks such as ICICI Bank, DLF, NTPC, Larsen & Toubro and Reliance Capital. The premium of Nifty October future, which had widened to 32.7 points last week, has now fallen to about 15 points, driven primarily by the fresh shorts positions created over the week.

Recommendation follow-up

We had advised investors to go in for short-straddle strategy using 4000 strike. But since Nifty future got decimated relentlessly last week, this strategy would have ended with sharp losses.

Infosys Technologies

We had advised investors to consider a long strangle by buying 1,500 call and 1,320 put to benefit from any wild swing in the stock price during the result week. This strategy would have yielded decent profits.

Outlook

The sharp fall on Friday and the relatively small bounce back on Friday have placed the Nifty future at a critical juncture. A fall below 3,250 could weaken it 2,600 though before that it may face a minor support at 2910.

On the other hand, any pull back above 3,505-10 can take the Nifty future to 3,800 levels. In the coming week, the Nifty future may test its first resistance level of 3,500.

And since the market tumbled quite heavily last week, we expect the Nifty future to see some deceptive relief rally, which may have the strength to pull it up to its initial resistance level of 3,505.

Recommendation

While trading in present market conditions is certain no-no for risk-averse traders, for the ones with the stomach to stand up to the incessant volatility in the markets, here are a few strategies.

Since we expect Nifty future to remain volatile, traders can consider long straddle on Nifty by buying 3400 call and put, which are currently quoting around Rs 153 and Rs 250 respectively.

Straddles are best put to use in markets when you expect a large swing but are not sure of direction it might take. Note that, the maximum loss in this strategy would be limited to the premium paid while the profit can be unlimited, depending on the extent of the swing.

Losses would occur if Nifty stays range-bound till expiry.

Traders willing to hold on to their positions for a longer time can consider buying Nifty December 3500 call, which closed on Friday at 224.

Stock futures

ICICI Bank (363)

We expect a wild swing in this stock, which faces a resistance at 475 and has support at 255. Given the way it got pulped the last week, it appears highly probable that the stock may touch test either one its immediate support or resistance the next week. Traders can set a straddle using 420-strikes of ICICI Bank. (No at or near the month options were available for trading)

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on October 8 was 35.79 per cent.

Foreign institutional investors have been selling out quite heavily, particularly so in index futures through out the week.

They now hold index futures worth Rs 9991.95 crore (Rs 9,968.52 crore) and stock futures worth Rs 13,675.43 crore (Rs 14,692.25 crore).Their holding on index options stood higher at Rs 19,262.5 crore (Rs 18,639.66 crore), according to latest NSE data.

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