The Hindu Business Line : Nifty future may try to head higher

Thanks to Friday’s strong recovery, the Nifty future managed to end the week on a positive note. The Nifty July future closed 4384, a gain of 1.3 per cent over the previous week’s close of 4326. It also ended with a premium of about eight points over Nifty spot, which ended at 4375.5. However, the rollover of Nifty future at 51 per cent was sharply lower when compared with its record in the previous three months. Even market-wide rollover was lower at 62-63 per cent, with a good number of counters witnessing short rollovers.

Follow-up

We had advised traders to consider long strangle strategy using 4200 put and 4400 call of July strikes. This spread will now be at the money as Nifty has closed the week between the two strikes. Traders can consider holding the spread for two more weeks.

Outlook

Nifty future tried to pierce the 4200 support level but failed to close below it. On the contrary, it later went on to stage a sharp recovery on Friday. Now as long Nifty future stays above 4200 (on a closing day basis), in all likelihood it would make another attempt to touch 4630, it next resistance level; though 4400 could act as minor resistance level in between. A move past 4630 can take it higher to 4800-4850 levels. But in case it manages to break below the 4200 level, it will find next support at 3650, though 4150 and 3800 would act as minor support level before that. In the coming week, we expect the Nifty future to make another attempt to reach the 4630 level.

Option monitor

Puts with strike prices as low as 3600 shot into active zone, due to the sudden turnaround in sentiment. Open interest was high in puts with strikes 4200, 4000 and 3800. This suggests the emergence of strong put writing activity, which in turn could act as a major support for Nifty. Among the calls, it was the 4700 strike that enjoyed high open interest, indicating that it could act as a strong resistance. The 4500 and 4200 call options also saw smart accumulation. But since 4200 strike saw accumulation in both puts and calls, the Nifty might may move in and around this range.

Volatility index

Volatility index ended the week on a weak note. It dipped to 37.99 against its previous week’s close of 48.95.

The fall in volatility index was despite the weakness in Nifty during the early part of the week.

Recommendation

Traders can consider the following two strategies.

1) Go long on Nifty future keeping the stop loss at 4200.

Traders can book their profits at 4450, 4630 and if lucky even at 4800.

2) Set a long straddle strategy using 4300 strike. (This strategy is for a slightly longer period). The 4300 put closed at Rs 155 and the call at Rs 238.15. This strategy would result in profit only if the Nifty swings wildly in either direction.

FII trend

The cumulative FII positions as percentage of the total gross market position on the derivative segment as on June 25 was 39.81 per cent. They were predominantly net buyers, particularly in index futures. They now hold index futures worth Rs 8,878.73 crore (Rs 14,707.95 crore) and stock futures worth Rs 16,869.59 crore (Rs 21,886.95 crore). On index options, FII holding declined to Rs 15,589.4 crore (Rs 26,556.37 crore).

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