The Hindu Business Line : Nifty future at a crucial juncture

The markets took a breather of sorts last week. The Nifty future closed at 4326, registering a fall of 5.6 per cent over the previous week’s close of 4584.35 points.

It however managed to end at a premium of 13 points over the Nifty spot, which closed the week at 4513.6.

The rollover so far for the Nifty future, from June to July series, has been quite low at just 12.75 per cent. Average rollover usually is around 25-30 per cent during the penultimate week before expiry.

Follow-up

We had presented two strategies and both generated considerable return.

1) Short Nifty future with stop-loss at 4700; it achieved our targeted levels, both 4450 and 4225.

2) Nifty 4600 put. It closed the week at Rs 290 against the opening price of Rs 150.

Outlook

The coming few days could be critical for Nifty future. It has a strong support at 4200. If it breaks this support level, then it could go all the way down to 3650, though in between it finds a minor support at 4150. On the other hand, if the Nifty future is able to sustain the Friday rally, then 4630 could be a major hurdle, though in between 4400 could act as a minor resistance zone.

A breach above 4630 could take it to 4800-50.

To put it simply, it currently is in a tight trading zone and any swing could take the Nifty decisively either to 3650 or 4800.

The crucial level therefore to watch out in the coming days is 4200-4210. (On Friday, the Nifty almost managed touch this level, but recovered sharply towards close). This week being the settlement week, traders have to be careful, as Nifty might see high intra-day volatility.

Option monitor

One more reason why we say 4200 is critical is because a lot of put writing has happened at that strike price. The 4200 put added over 9 lakh shares on Friday alone.

Last week’s fall also activated lot of puts at strikes 3900 and 3800.

Call options too witnessed heightened activity at strikes ranging from 4200 to 5200. The 5200 July call saw smart accumulation of over 2.5 lakh shares on Friday, indicating select traders are expecting wild swings next month.

On the puts side, 4500 and 4400 were activity traded and shed open interest.

This suggests that traders squared off their position to book profit and accumulated fresh positions at lower levels.

Volatility index

Volatility index ended the week higher at 48.95 against a close of 40.83 the previous week. However, it eased from intra-week peak of 80.42.

Recommendation

Traders can consider setting the long strangle strategy, with higher time period exposure. A long strangle involves buying a put option and call option on the same underlying, with the same expiration dates and at strike prices that are out-of-the-money. This strategy is best suited when one is bullish on volatility but is unsure of the market direction.

You can consider long strangle strategy by buying 4200 July put and 4400 July call. The call ended the week at Rs 208.9 and the put at Rs179.6. This strategy may result in loss if the Nifty remains range bound between 4200 and 4400.

FII trends

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on June 18 was 36.41 per cent.

They were net sellers predominantly in recent times, particularly on stock and index futures. But on Friday they turned net sellers on index options and buyers on futures.

They now hold index futures worth Rs 14,707.95 crore and stock futures worth Rs 21,886.95 crore.

On index options, FII holding declined to Rs 26,556.37 crore (Rs 26,912.24 crore).

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

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