The Hindu Business Line : Nifty future to take direction from Budget

Once again Friday came to the market’s rescue helping the Nifty future close the week on a positive note. The Nifty July future closed at 4424.65, gaining 0.9 per cent over the previous week’s close of 4384. But the Nifty future ended almost on par with the spot, which ended at 4424.25. Despite firm ending, the Nifty future started shedding open interest, particularly on Thursday and Friday.

Open interest currently stands at 2.20 crore shares for Nifty July future as against 2.16 crore the previous week. During the week, however, open interest position jumped to 2.23 crore shares.

Follow-up

Two recommendations were given last week.

1) Going long on the Nifty future with the stop-loss at 4200 and a target of 4450, 4630 and 4800. The Nifty future almost hit the first target.

2) Setting a long straddle strategy using 4300 strike. This position is also slightly in the money considering the opening (on Monday) and closing (on Friday) prices. As advised, traders could hold on to this position for two more weeks as the Nifty could set clear direction post Budget.

Outlook

One more week has gone by but the Nifty future has confined itself to the narrow band of 4200-4450. It could, however, take clear direction this week as lot of expectation is getting built with regards to both the budget and the markets.

The 4200 level may still be a crucial support for Nifty futures, breaching which the next important support level appears at 3650, though 4150 and 3800 could lend minor support.

Alternatively, if it is able to sustain the current rally, then the next crucial resistance level appears 4630, breaking which the Nifty could sail all the way to 4800.

With this being the Budget week, the Nifty future is set to see volatile trading pattern at least on Monday. However, the surrendering of open interest (in Nifty July future) and the strong built-up in 3800 level suggests that Nifty could take a negative swing. We advise traders to remain highly cautious during the week.

Option monitor

Trading in options indicates that many traders have adopted strangle strategy. Accumulation has been quite heavy in contracts such as 3600 put and 5300 call.

This suggests that traders are expecting wild swing on Nifty either to 3600 level or 5300 level. Among the calls, it was 4700 strike that has higher open interest suggesting it might act as a strong resistance. Among the puts, strikes at 4200, 3900 and 3800 have seen smart accumulation.

Volatility Index

Volatility index ended the week on a strong note. It gained steadily to 45.86 against the previous week’s close of 37.99. The gain in volatility index is quite natural with the Budget up ahead.

Recommendation

Traders can consider the following strategy for the week

Consider long straddle strategy using 4400 strike. The 4300 call closed at a premium of Rs 225.10 and the put at Rs 202.45.

This strategy would result in profit only if the Nifty swings wildly in one direction. If the Nifty stays around 4400 levels, then the position would result in loss. Since the premiums are quite high for both calls and puts, it is advised that traders with only a high penchant of risk adopt this strategy.

FII trend

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on July 2 was 35.45 per cent. They indulged in alternate bouts of buying and selling.

They now hold index futures worth Rs 8,435.74 crore (Rs 8,878.73 crore) and stock futures worth Rs 18,529.59 crore (Rs 16,869.59 crore). On index options, FII holding increased to Rs 20,785.2 crore (Rs 15,589.4 crore).

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

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