SENSEX NIFTY
Sep 18, 2013, 10.30 AM IST | Source: CNBC-TV18

Brace for sell-off if US Fed disappoints: Amit Trivedi

As a Futures and Options strategy, Amit Trivedi, Co-Founder, Investworks.in recommends a ratio trade. One can buy 6,000 strike Calls and sell two 6,100 Calls, so there is Rs 3 invested in this strategy, he said

Amit Trivedi, Co-Founder, Investworks.in expects the market to rally if Fed tapering is less than USD 10 billion. He sees the Nifty touching 6,000-6,100. However, if the Fed disappoints then one should brace for a sell-off.

"If there is positive news, funds will try and digest the news and then money will come into India. However, if there is negative news, fund flow from India will be very quick," he adds in an interview to CNBC-TV18.

Also read: IT, pharma may lead mkt; see dismal Q2 earnings, says HSBC

Below are the excerpts of his interview on CNBC-TV18

Q: What is your strategy on Nifty and Bank Nifty?

A: If there is a positive news of less than USD 10 billion kind of a number being tapered off, there could be some more rally on the upside, which can take the  Nifty to around 6,000-6,100 kind of levels.

Similarly, if not numbers but they give some kind of a roadmap on when they want to cut the entire stimulus that could lead to some more volatility in the markets. If that happens, there could be some sell-off in the markets.

If there is positive news, funds will try and digest the news and then money will come into India. However, if there is negative news, fund flow from India will be very quick.

Hence, we think if the markets go up, it will be 100-150 points kind of an upmove but if there is a sell-off, it can be a much deeper one kind of thing.

We are recommending to clients to do some kind of ratio trade because Option volatility has gone up to around 30 percent, one can buy 6,000 strike Calls and sell two 6,100 Calls so there is Rs 3 invested in this strategy. On the lower side, you can buy 5,600 Puts at around Rs 31 and sell two 5,500 Puts. So you get a cash inflow of around Rs 7 in the strategy. Net-net you get Rs 4 in the strategy and you are profitable if market remains between 6,000 and 6,200 or 5,600 and 5,400 kind of levels.

Q: What is your strategy on Bharat Heavy Electricals Ltd ( BHEL )?

A: Option volatility of BHEL have gone up to around 70 percent. We think after today’s event they should come down. There could be 7-8 percent move on the stock hence we are recommending the stock. It is currently at Rs 137-140 so one can go and sell 110 Puts at around Rs 0.5-0.6.

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