The Hindu Business Line : Nifty might open on a weak note

We had presented two strategies - going long on Nifty future with stop-loss at 2750 (in case of soft opening) and short straddle (slightly longer period) by selling Nifty 3200 call and puts.

While the first strategy did provide some profit opportunities, as the index futures surged after a soft opening, it did not touch our targeted level.

As was recommended the short straddle strategy can be held for one more week; considering the opening price (on Monday) and the closing price (on Friday), this strategy is in out of the money.

Reliance Industries: We had advised traders to short Reliance Industries keeping the stop-loss at 1350.

As expected, after opening on a positive note on Monday, the stock turned weak and hit our first targeted level of 1150. The week’s close on Friday highlights a downward pressure on Nifty future.

While it faces support at 2600-2550, the Nifty future faces a strong resistance at 3250 level. However, in between the two levels, it faces a minor resistance at 2950.

While a fall below 2550 has the potential to take Nifty future to as low as 1880-1950, a move above 3250 can take it to 3550 and even to 3850 levels.

The overall sentiment, however, would turn bullish only if the Nifty future crosses 4350.

India VIX or Volatility Index, which indicates the expected immediate volatility of the market, has been hovering around 70-95 point range throughout last week.

This figure is quite high and indicates that Nifty may be set for heightened volatility both during the week and intra-day trades.

Recommendation

We suggest traders to exercise caution this week. The Nifty future is likely to open on negative note. Traders, with a high risk appetite, can go short on Nifty future if it dips below 2700 - in that case the stop-loss should be kept at 2700.

It can be adjusted progressively to protect the profits earned.

On the other hand, if the market opens on positive note, traders can consider a short-straddle strategy. This can be initiated by selling Nifty 3800 call and put, which ended on Friday at Rs 162 and Rs 152 respectively.

This strategy is best used when you expect the underlying to move sideways.

The maximum profit in the position is equal to the net credit and can be realised only if the underlying asset stays between the upper and lower break even points.

That said, this strategy may call for high margin money as it entails writing options.

Stock futures

SBI (1171): The stock is crucially placed. While it faces immediate support at 1125, it has resistance at 1265. A dip below its support can take the stock future to 1085 and even to 965; on the other hand, any move above its resistance can take it to 1315 and 1450. However, we expect the stock to rule weak.

Consider going short on SBI keeping the stop loss at 1265. In this case also, you can consider adjusting the stop loss progressively.

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as onNovember12 decreased to 37.58 per cent.

Foreign institutional investors have been net sellers during most part of the week.

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