In an interview to CNBC-TV18, Amit Trivedi, co-founder, Investworks.in shared his reading and outlook on the F&O market. He expects Nifty to consolidate in the broad range around 5,900-6,100 for next few weeks.
He sees Bank Nifty hovering around 12,500 levels. One could sell HDFC at 860 Strike Call and Put, for a target of around Rs 36 with a stop loss at around Rs 45. The straddle price for HDFC is around Rs 42, he recommended.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: How you would approach the markets now? There was quite a bit of buying that we saw in index Futures yesterday by Foreign Institutional Investors (FIIs). What kind of upside potential do you see for the market now?
A: There are a couple of things that are happening in markets. First, last week we had the rate cut from European Central Bank (ECB) and Reserve Bank of India (RBI) which is fuelling liquidity in markets. Second, most market participants had expected that 6000 would be the upper end of the range but since we have moved beyond that lot of Call unwinding is happening, which is taking the markets slightly higher.
We think Nifty should broadly be in a range of around 6000 plus-minus 50 points. So as a strategy, we recommend traders to sell 6000 strike straddle which is Call and Put, which is trading at around Rs 190 right now. So one will be profitable if Nifty remains between 5810 and 6190 levels and the maximum profit is if Nifty remains at 6000 levels.
Q: How are you approaching the Bank Nifty now and any recommendations in the banking space for today?
A: Bank Nifty is moving around that 12,400 levels plus-minus 200-250 points. We think banks should consolidate at these levels. 12,500 is where we think Bank Nifty should be.
For the day, we think HDFC’s results are expected to come out and HDFC which normally trades at an implied volatility of around 19-21 percent is now trading at around 24 percent. The straddle price is around Rs 42, so one can go and sell 860 Strike Call and Put, for a target of around Rs 36. One can place a stop loss at around Rs 45 for this particular strategy.
Q: You were making that point about the Calls. What is your observation right now of how the market is positioned in terms of whether most of that Call adjustment is done or there is more to go on the index?
A: People are incrementally shifting their positions. So when 5900 crossed, they thought it would not go beyond 6000 and as 6000 gets crossed now, they are saying that it would not go beyond 6100. That is what is fuelling the covering of the Options part of it.
Broadly, as we have moved out of that range of 5800-6000, there could be some more movement on the upside to around 6100-6150 levels. Over the next few weeks it may consolidate and we may be at around 5900-6100 kind of broad range.
Q: You have a call on Tata Motors for the day. Just tell us about that quickly.
A: Tata Motors is broadly moving around Rs 260-300 range. We think it should continue to do that for the rest of the series. One can go and sell 240 strike Puts of Tata Motors at around Rs 0.55 that translates to around Rs 550 of cash inflow and a margin deployed of Rs 35,000, so that is 1.5 percent returns. You are safe if Tata Motors remains any value above Rs 240. Tata Motors currently at Rs 300, which gives you around 20 percent cushion before you start hitting losses in this particular strategy.