May 29, 2013 12:17 PM IST | Source: CNBC-TV18

Nifty to end May series around 6050: ICICI Direct

In June if the market goes beyond 6,200 then volatility may rise but the Nifty may move towards 6400, says Amit Gupta of ICICI Direct.

In an interview to CNBC-TV18 Amit Gupta of ICICI Direct shared his reading and outlook on the Futures and Options market.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What is your sense of how the Nifty does between now and expiry day tomorrow?

A: As we discussed last time that Nifty is in a consolidation of around 250-points because when we look at the Nifty and Bank Nifty Futures open interest, it is almost close to September last year and after which the market consolidated for one-two months around 200-250 points range. That was the reason that last time we had an opinion that once market sees some profit booking towards 5,950-5,930 levels, we should be the buyer that time and look for targets of 6150-6200.

On the higher side 6,200 Call Options are still very much intact. On the lower side 6000 Put Options also are very much intact. That has not only been the scenario in May, but in June series also we are seeing these near the money Options are playing more role and that is why market is more into consolidation right now. It is going to be more stock specific.

We have observed that if you look at the stock Futures open interest, in the last series it was only 145 crore shares, now it has zoomed up to 175 crore shares. So in this consolidation, the participation level has increased and that is why these 30 crore shares of extra open interest has been added in the stock Futures. And that is going to be rolled into the month of June and that is why you might see more stock specific volatility.

However, till expiry we need to look at the two features. One is volatility which has come down. In fact the seven day moving average was very critical actually in volatility, it was just consistently moving above this average that shows how much uptrend was intact in the volatility with the rising market. And when we saw some profit booking that time also it did not dip.

However on May 24, we saw that it came below this level and the follow up also came. In both the sessions there was index option selling by the Foreign Institutional Investors (FIIs) that suggests that now the markets are going to be more range bound till expiry. For this particular range, the volume weighted average price of this consolidated series is around 6,050. So we should not go too much here and there from those levels and should expire on those levels.

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Q: You have a trading strategy on Dr Reddy's Laboratories, how are you playing that?

A: Dr Reddy's hasn’t moved with the other pharma stocks when they were performing in the last couple of months. In fact now very clearly the money is flowing into the stock, it made an all time high around Rs 2,160. After the results, it dipped towards Rs 2,030 but since then we have seen around 15 percent long addition in the stock and that is why I think there is a large possibility it will surpass Rs 2,160 and meet Rs 2,220 levels.

So it is better to play long in the stock right now and keep your stop loss around Rs 2,030-2,040 and the fresh buildup will possibly take it to further new highs.

Q: Any early signs you are getting for the June series from the rollovers because starting tomorrow we will have to start looking into what happens in the early part of the June series beyond the range that you are indicating?

A: Looking at the Options, the 6200 Call writers are still rolling the positions to 6200 and then we have seen 6400 Calls also are getting rolled.

In the last series, there was a clear pain to the Call writers. Therefore, in this particular series to a certain extent, these Call writers have finally escaped.

However, if market goes beyond 6,200, there is a large possibility that you will see the volatility rising a bit again and the market moving towards 6400.

In case of Futures, there is still a heavy open interest left in Nifty Futures in the current series so we have to see how much it is going to be rolled to the next one but if 60-70 percent also gets rolled then we are going to see little bit of consolidation.

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