Nifty was able to breach all resistances in the recent rally. It has now closed at 5,565, after briefly touching 5,600 intra-day on Friday. While the bellwether has managed to overcome the negative outlook, thanks to the recent sharp rally, only a conclusive close above 5,610 will change its long-term outlook to positive. In that event, the chance of breaking previous high cannot be ruled out. Till such time, it will trade sideways.

While it finds a strong support at 5,525 and the next one at 5,400, a close below 4,720 will change its outlook to negative once again. In that event, the fall could be sharp and severe.

F&O pointers: The Nifty Futures witnessed a rollover of 24 per cent. Most of the Nifty stocks witnessed unwinding of long positions, signalling that this rally is tiring. Option trading also indicates that Nifty could face resistance going forward. The March series of 5,600 and 5,700 calls accumulated open position. However, since puts also added open position, the fall might not be that drastic. The 5,200 put and 5,700 call in March series have the highest number of open positions, suggesting that Nifty could move in this range.

Volatility Index

The volatility index has been on the rise last week. It closed at 24.18 as against the previous week's close of 23.83. This suggests that fear could be creeping in the market despite Nifty showing resilience. The rise in fear gauge is generally negatively correlated with index movement. Cost of carry for March Futures stood at around 11.5 per cent, which indicates that traders are not willing to carry over their position.

Uncertainties: The following uncertainties at macro/micro level could deflate the bull party.

1) The results of Uttar Pradesh Assembly and other four States. If the Congress fares poorly in these elections, particularly in UP, then the market could see a fall, albeit temporarily.

2) The Union Budget is to be presented on March 16. If there are any unpleasant surprises for the market, there could be selling pressure.

3) If global uncertainties such as the Iran imbroglio, economy mess at Greece and other European nations escalate, the bull party would be in trouble.

4) Rising crude oil price could pose threat.

Recommendation

Traders can buy Nifty 5,100 and 5,000 puts of June contract. The latter closed at a premium of Rs 88.5 while the former closed at Rs 104. The 5,000 put is more liquid; in contrast, only six contracts changed hands for 5,100 June put. If Nifty falls sharply, then the premium of the put would start to rise. If that happens on or around Budget, then the chance of premium going up sharply would be very high. Due to time value, the premium will rise sharply.

The maximum loss could be the premium paid, which works out to about Rs 5,200 for a single contract.

Follow-up: Last week we advised traders to short SBI and Suzlon. We also advised traders to write a call on SBI. The strategy would not have yielded profits as the stock maintained its bullish momentum.

The other suggested strategy on Suzlon is still in-the-money. Traders could hold on to the position with the recommended stop-loss.

Note: The analysis and opinion expressed in this column are based on F&O data available at this point of time and on technical analysis based on past price movements. There is risk of loss in trading.

Feedback or queries (on positions) may be sent to >f&o@thehindu.co.in , >blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.

Related Topics
comment COMMENT NOW