The Hindu Business Line : Nifty future remains at critical stage

Nifty December future staged a sharp recovery of 7.8 per cent over the week to end at 2921.7 points against its previous week’s close of 2711.1. It, however, ended almost at par with the Nifty spot, which ended the week at 2921.35. The series also saw a steady build-up in open interest positions.

Follow up

1) We had advised traders to go long on Nifty future keeping the stop-loss at 2550;

2) We also advised traders to consider short straddle by using 2700 strike.

While the first strategy would have yielded handsome gains, the second strategy is still slightly out of the money. Traders can continue to hold on this strategy (short straddle) as was advised last week.

Tata Steel: We had advised traders to go short on the stock keeping the stop-loss at 215. The stop-loss however would have been triggered as the stock price remained firm last week.

Nifty future outlook

The Nifty future is on the verge of breaking the crucial resistance level of 2950. It has been hovering around 2450-2950 level for quite some time. As has been previously written in this column, the Nifty future on breaching the 2950 mark, can achieve the next target level of 3250 quite easily. The Nifty future finds the immediate support at around 2750 and the big crucial support at 2450. A break below that level can take it to 1880-1950.

India VIX or Volatility Index broke below its psychological 50-point mark on Friday to end at 49.23 points. That said, the number is still quite high. The index, which measures the immediate expected volatility of Nifty has been hovering around 60-95 range for quite some time.

Both 2900 and 3000 calls saw marginal accumulation in open interest positions while 2800 call witnessed a drop of 5 per cent in open positions. On the other hand, Nifty December 2800, 2700 and 2600 strikes added quite heavy open positions, particularly puts of the first two strikes. This indicates the emergence of put writers in 2800 and 2700, which could act as strong support for Nifty future.

Recommendation:

Consider the following two strategies:

1) We expect the positive momentum in Nifty to continue. Traders can, however, consider going short on Nifty future, if it opens on a strong note (above 3000 point mark). In that case the stop-loss can be placed at 3250.

2) On the other hand, if it opens on a negative note, traders can consider going long on Nifty future keeping the stop- loss at 2550.

3) Consider short straddle strategy using 2900-strikes. While the 2900 call closed the week at around 123.75, the put ended the week at 101.3. 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 can be unlimited.

Stock futures

DLF (275.5)

The stock has recovered quite sharply in the last few days. It now faces resistance at 300 and support at 200.Traders can consider going short on the stock if it dips below 265. In that event, the stop-loss can be placed at 300. The stop-loss has to be adjusted suitably to cover the profit.

FIIs trend

The cumulative FII positions as percentage of the total gross market position on the derivative segment as on December 11 stood at 31.87 per cent. Foreign institutional investors were predominantly net buyers last week. They now hold index futures worth Rs 8,842.16 crore (Rs 6,126.88 crore) and stock future worth Rs 10,649.29 crore (Rs 9,143.61 crore).Their index options holding stood higher at Rs 13,580.75 crore (Rs 11,070.33 crore).

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