The Hindu Business Line : Nifty future likely to stage a recovery

The NSE Nifty November future declined 2.18 per cent to end last week at 2711.1 against its previous week’s close of 2771.6. It also surrendered its premium in the process and closed at a discount of about three points over the spot.

Outlook

As we had envisaged earlier, the Nifty future has been moving in a narrow band of 2400-2950. Despite weak global cues, Nifty future may see some recovery this week. It faces resistance at 2950, breaching which may take it to as high as3250. However, a fall below 2450 can take the Nifty future to 1880-1950 levels, though in between it may face a minor resistance at 2290-2300. That said, one can take assume an overall bullish view, only if the Nifty future crosses 4350.

India VIX or Volatility Index, which had been hovering around 60-95 point range throughout last month, has now eased a bit. The index, which measures the immediate expected volatility of Nifty, closed at about 52 points. It nevertheless is still quite high and indicates that Nifty may be in for heightened volatility.

Both 2500 and 2600 puts saw a significant drop in open interest positions. While the former shed 5 per cent, the latter witnessed a decrease of 10 per cent in open interest positions.

This suggests the emergence of put writers, and indicates that Nifty may have a strong support between 2600-2500 levels. On the other hand, Nifty December 2900 call accumulated open interest positions, underpinning the positive bias in the market. Even January 3000 call turned active, suggesting that traders expect the Nifty to cross 3000-mark by next month.

Recommendation:

Consider the following two strategies:

1) Go long on Nifty future keeping the stop-loss at 2550. We expect the Nifty future to test its resistance.

2) Consider short straddle strategy using 2700-strikes. While the 2700 call closed the week at around 147, the put ended the week at 137.7. This strategy is best suited if one considers the market to move in a narrow range. While the maximum profit in this strategy could be the premium earned, the loss is unlimited. Note that this strategy has been suggested for a slightly longer period. That said, considering the heightened volatility in the markets, we suggest traders only with the wherewithal to stomach the risk involved consider trading in these markets.

Stock futures

Tata Steel (182.5)

The stock is crucially placed. It faces resistance at 215 and support at 165.While a move above 215 can take the stock to 248-250 range, a fall below 165 may weaken it to 148-145 level. We expect the latter to happen. Traders, who are willing to take higher risk, can consider going short on Tata Steel futures, keeping stop-loss at 215. Note that the stop-loss can be adjusted suitably to cover the profit.

FIIs trend

The cumulative FII position as a percentage of total gross market position in the derivative segment as on December 4 stood at about 34 per cent. Foreign institutional investors have indulged in alternate bouts of buying and selling during most part of the week. They now hold index futures worth Rs 6,126.88 crore and stock future worth Rs 9,143.61 crore. Their index options holding stood higher at Rs 11,070.33 crore.

More Stories on : Derivatives Markets | Stock Markets | F & O Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page