The Hindu Business Line : Nifty future may drift downwards

After weeks of relentless gains, the markets finally appear to be losing some of its steam. The Nifty future closed the week at 4584.35, lower than its previous week’s close of 4594. It however swung wildly during the week, but in the process landed up surrendering most of its premium over Nifty spot, which closed a shade lower at 4583.4. But in spite of the high volatility, there was a steady accumulation in open interest for Nifty futures.

Follow-up

We had advised traders to consider short straddle strategy using 4600-strike. This strategy is currently in the positive zone, considering the opening (on Monday) and the closing (Friday) prices. Traders with a high-risk appetite can continue to hold on to the spread to derive maximum benefit.

Outlook

Though the Nifty future has closed above the crucial resistance at 4630, it failed to capitalise on it and ended the week lower at 4584.35. The Nifty future may have lost some of its upward momentum and therefore is likely to face stronger resistance at higher levels. But if it is able to break the immediate resistance zone at 4630 with a strong note, then three key resistances will be at 4825-4850, 4935 and 5175. But as has been mentioned previously in this column, the Nifty future appears to be heading for a major break out, either on the upside or on the downside. Whichever way the Nifty chooses to trend, it will have the potential to traverse over 500 points. On the downside, the key support is still at 4210-25, though before that 4425-4450 levels could provide minor support. A drop below 4210 would however negate the current bullish sentiment. The next three key support levels are at 3825, 3650 and 3530.

Option monitor

The underlying bullish sentiment in the market however refuses to let go, what with call options as wide as 5200 entering the active zone. Among the calls, options strikes at 4600, 4700 and 4800 levels witnessed heavy trading activity. However, the steady accumulation of options at 4700 and 4800 strikes suggests that Nifty may find it increasingly difficult to tread beyond these levels. On the puts side, strikes at 4500 and 4400 were activity traded. But what’s notable is that most of the puts shed open interest. This suggests that traders (writers) may have squared off their positions to book profits and may have accumulated fresh positions at lower levels.

Volatility Index

Volatility index was more or less steady throughout the week. It closed the week flat at 40.83 points against its previous week’s close of 40.55. However during the week, it touched a high of about 75 points, suggesting that some anxious traders may be accumulating puts.

Recommendation

Traders can consider the following two strategies:

1) Short Nifty future with a stop loss at 4700. Traders could book profit at 4450 and 4225 levels. But since there is also an equal probability of a sudden bounce in the markets, this strategy may be suitable only for traders with a high-risk appetite

2) Alternatively, trades can consider buying 4600 put, which ended on Friday at Rs 135.2.

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

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