The Hindu Business Line : Nifty future may make another attempt to rise

Pointers
Nifty future trades at a premium
F&O volumes abysmally low
Volatility index dips sharply
Rollover remains steady for both index and stock futures

K.S. Badri Narayanan

The Nifty future failed to sustain the rally last week. It ended sharply lower, dipping well below the crucial 3000-mark to end at 2866.35.

However, it still continues to rule at a premium to the spot, which closed at 2857.65. While trading volumes remained on the lower side throughout the week, it dipped to Rs 24,153.9 crore on Friday, the lowest so far in 2008 (not including the Muhurat day volumes).

This clearly indicates that the participation by both hedging as well as speculative operators has been on the wane.

Rollover of open interest positions to January month series remained normal for both index and stock futures.

Follow up

1) We had advised traders to consider shorting Nifty future with a stop-loss at 3250. The position would have yielded handsome results, as the Nifty December future ended sharply lower.

Nifty future outlook

The Nifty future is at a critical stage currently. Despite the sharp slide last week, we expect Nifty futures to make another attempt to climb above ‘Mount 3K’.

While the immediate major resistance appears around 3250, a move above could take to 3550. On the other hand, a fall below 2750 could weaken it to October lows.

In that event, the slide could be sharp and swift. If the Nifty future fails to break the 3150 in this expected rally, then the possibility of it touching the October low appears bright.

India VIX or Volatility Index, which had weakened quite a bit in the recent weeks, made sharp turnaround.

It climbed above 40-point mark once again and closed the week at 45.16.

The recovery in VIX index is really a worrying signal, as it was backed by low volumes.

Further, there has been a steady accumulation of open interest positions in Nifty January 3300 call and 2700 puts. This indicates that traders expect a narrow 2700-3300 range-bound movement.

Recommendation

Consider the following two strategies:

1) Consider going long on Nifty future keeping the stop-loss at 2750, if the Nifty opens on a soft note. (We are expecting the Nifty to open on soft note only).

2) Short straddle using 2900 strikes. The strategy is best suited if one expects the market to move in a narrow range.

The Nifty 2900 call closed on Friday at 134.75 and the put at 167.75.

FIIs trend

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on December 26 stood at 35.98 per cent. Foreign institutional investors were predominantly net sellers during most part of the week.

They now hold index futures worth Rs 6,987.03 crore (Rs 9,850.01 crore) and stock future worth Rs 10,113.15 crore (Rs 12,314 crore).

Their index options holding declined sharply to Rs 5,499 crore (Rs 15,310.2 crore).

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