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Aug 11, 2012, 01.40 PM IST
Long Straddle on Nifty: It can be initiated by buying 5200CE and 5200PE of August series. The net combined premium outflow comes around Rs 180, which is also the maximum loss. The break-even stands at 5380-5020 levels. There is unlimited profit beyond the break-even range.
In the previous fortnight, Nifty Futures lost around 1.35% in July owing to weak advent of monsoon, lack of firm policy initiative by the government and RBI’s decision to keep key rates unchanged.
As expected, the RBI kept all the key rates unchanged (except SLR). It, however, raised inflation forecast to 7% from 6.5% and revised GDP growth lower to 6.5% from 7.3% for the financial year 2012-13, dampening investor sentiments.
The bigger-than-expected 1,63,000 increase in US non-farm payrolls in July, along with the increase in the ISM non-manufacturing index, eased fears that the US economy may follow Europe into recession. This has improved hopes regarding the global economic outlook.
In the absence of any other news trigger, the Q1 FY 12-13 earnings results are expected to provide further cues to the Indian equity markets. All major auto stocks, along with SBI are yet to declare their results, which has the potential to provide direction to the markets.
The Put Call Ratio-Open Interest (PCR-OI) for Nifty Options is hovering between a very narrow range of 1 and 1.11 since the past fortnight. The current PCR OI stands at 1.09 and going forward, we see the PCR moving upwards near the level of 1.2 till the end of the August expiry maintaining a positive bias for expiry.
On the Nifty Options side, for the August series, highest build up is witnessed near 5000PE since the start of the August expiry even when the Nifty July series expired at 5,042.
Since then aggressive Put writing has been seen at strikes 5000, 5100 and 5200 making the Nifty climb up to levels above 5,300. At present (as on 6th August), highest OI for Call and Put is seen at 5,500 and 5,000 to the tune of 8.36 mn and 10.27 mn, respectively. We believe the markets may retest any of the above levels in the current expiry itself.
The thing to notice in Options these days is the Volatility Index (VIX), which is hovering near its historical lows of 15-16. Looking at the uncertainty on the global as well as the domestic front (concerns over scarcity of rainfall and lack of political action), we think Indian equity options are at considerably cheaper rates and would recommend traders to go long on volatility from these levels for a short-term target of 20-22.
The short-term trend has slightly turned positive but the overall medium trend remains cautious and weak. The Index has witnessed a volatile trading session since the past few weeks. The pattern suggests an immediate resistance at the 5,350 level and support resides around the 5,080 level.
The Nifty is also trading above its long-term 100-200 day moving average, which is also a healthy sign. The current month’s Nifty Option suggests that the market will trade in the tight range of 5,100-5,350 and a big move could be seen only if the Nifty closes on either side of the range. The Nifty has managed to close above the Fibonacci retracement (61.8%) that is, the 5,210 level in the last two trading sessions. Till the time 5,230-5,170 levels are intact, there is a valid possibility that the Nifty may make an attempt to scale higher.
However, the Nifty is facing a strong resistance of 5,350 level Fibonacci Retracement levels. Important oscillators RSI & MACD on the daily have turned positive, giving a sense of a short rally taking place. Immediate resistance of 5,300 and stability above this could extend the rally to 5,370/ 5,450 levels. A strong support is seen at the 5,080 level and fresh selling can be seen only if the Nifty starts trading below this point. The overall mode of markets will turn positive only if the Nifty starts trading above the 5,280 level. Till then, any sharp rally in the market should be used as a selling opportunity.
The Bank Nifty faces strong resistance around the 10,500 level on the upside; on a decisive close above, investors can expect it to rise to 10,620 and 10,700 levels. The short-term moving averages have converged and are placed with buy signals. On the oscillator front, RSI is placed with a positive signal on the midway. There is an immediate support at the 10,275-10,250 levels on the downside.
Strategy for August expiry
Long Straddle on Nifty: It can be initiated by buying 5200CE (European Call) and 5200PE (European Put) of August series. The net combined premium outflow comes around Rs 180, which is also the maximum loss (i.e. if the Nifty August series expires at 5,200). The break-even stands at 5,380-5,020 levels. There is unlimited profit beyond the break-even range. Traders can square off their strategy when the 5,200 straddle rate crosses above 250.
Source: Nirmal Bang's Beyond Market
Tags: Nirmal Bang, Beyond Market, Nifty, Straddle, Call, Put, Bank Nifty, Options, Volatility Index, Put Call Ratio, Open Interest, Futures, RBI, inflation, GDP
Jun 18 2013, 22:39
- in MARKET OUTLOOK
Jun 18 2013, 22:39
- in Business