Technical Analysis

Bet on bullish momentum

KS BADRI NARAYANAN | Updated on January 17, 2018


The outlook for Nifty 50 futures remains positive. The index finds immediate support at 8,546 and the next crucial one at 8,287. Only a close below the latter will alter the short-term outlook. To alter the medium-term outlook to negative, the index has to close below 7,722.

Nifty 50 Futures (₹8677.2) index finds resistance at 8,728 and a close above this level will trigger a fresh rally in the index. Nifty 50 can then move past its previous peak of 9,008 it registered in March last year. Sustained rally can take Nifty 50 to 9,450 initially and then to 9,820.

F&O pointers: Nifty 50 futures witnessed a rollover of about 19 per cent to September series. Nifty 50 September futures closed on Friday at 8,727.1 against August futures price of 8,677.2 and the underlying index at 8,666.9. This signals that most rollovers are on the long side. Option trading indicates that Nifty could move in 8,500-8,800 range in the short term.

Strategy: Traders can consider a calendar spread on Nifty 50 using 8,600-strike call options. This can be constructed by selling 8,600-August call and simultaneously buying the 8,600-September call. They closed with a premium of ₹105.5 and ₹228.5 respectively. This strategy will cost traders ₹123/contract or ₹9,225 (as market lot is 75 per contract).

The maximum loss one suffers in this strategy is the premium paid (₹9,225). For that to happen, the index has to close at or below 8,600 level at the time of expiry.

However, the profit potential is unlimited in this strategy, particularly if Nifty 50 slips in the next four days and rises sharply after that. If that happens, the premium of August option will turn worthless, making the entire value (₹105.5) profitable. Hold the September option till the expiry. Profits can be booked in September option, if the benchmark index rises above 8,900.

Coal India (₹334.2): The long-term outlook for Coal India will turn positive only if the stock manages to close above ₹372. In the short term, we expect the stock to move in the range of ₹285-350. A close below ₹285 will turn the long-term outlook to negative for Coal India.

F&O pointers: Coal India August futures added over 10 lakh shares despite only a few days left for expiry. This signals build up of short positions. The counter witnessed a rollover of just 9 per cent to September series.

Strategy: With expiry round the corner, traders can consider buying 335 August call. It closed with a premium of ₹4.30. As the market lot is 1,700 shares per contract, the total loss could be ₹7,300.

We expect the stock to bounce back ahead of expiry. Traders can consider exiting the position, if premium declines to ₹1.5 or if it surges to ₹8.5.

Published on August 21, 2016

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