SENSEX NIFTY
May 17, 2013, 09.56 AM IST | Source: CNBC-TV18

F&O cues: Nifty to hover in 5800-6200, says Amit Trivedi

Amit Trivedi of Co-Founder of Investworks.in expects markets to head higher but cautions of significant increase in volatility going forward.

In an interview to CNBC-TV18, Amit Trivedi of Co-Founder of Investworks.in shared outlook for the F&O market and gave recommendations on various stocks.

Below is a verbatim transcript of the interview:

Q: How are you mapping the Nifty from hereon?

A: If you look at markets globally, since last couple of months we are seeing money moving out of US bond market into equity markets and that has led to spillover to all equity markets globally.

The money that we are also receiving it is part of that money coming in the form of exchange traded fund (ETF) money. So, we think this liquidity flow, which is driving the market, should continue. Unless there is a strong change in Fed’s policy, which we doubt will happen in this particular calendar year.

So, we expect that markets should remain at higher levels of price to earnings (P/E) but volatility may increase significantly going forward also. So, that is the view for the markets. For example, we think 5,800-6,200 could be a broad range but you can see huge volatility in markets.

Q: ITC reports today and you have a strategy on that stock?

A: Consumption stocks have rallied quite a bit. So we think for the day, aggressive traders can go and short straddles of ITC 340 strike, which is both Calls and Puts currently trading at around Rs 16. So that is trading at implied volatility of around 30 percent. ITC during results typically does not move more than 3-5 percent and volatility come down by around 6-7 percent. So if you look at it, the straddle price should come down to around Rs 12-13. So aggressive traders can trade this strategy, which is go and sell straddle of 340 strike at around Rs 16 for a target of around Rs 13.

Q: This one has been sideways for a while but you have got a trading strategy on Tata Motors this morning?

A: Tata Motors is moving in a range of around Rs 280-285 on the lower side and around Rs 310 on the higher side. Results will come for Tata Motors on May 29 and option volatility has increased to around 46 percent. So we think the stock should broadly remain in this range of around Rs 280 to Rs 310 kind of levels.

We are recommending that traders can execute a ratio trade which is buy a 290 strike Put at around Rs 5 and sell two 280 strike Puts at around Rs 3. So you get Re 1 in the strategy which translates to Rs 1,000. So if Tata Motors remains any value above Rs 270, you make Re 1 as profit. If Tata Motors goes down to Rs 280, you will make a profit of Rs 11 and your losses will start if Tata Motors goes down below Rs 270, which is approximately 12 percent from current levels.

Q: What do you do with a stock like State Bank of India (SBI) which has gone up such a lot?

A: All of the banks have rallied. SBI is the last one to come out with results. I think on May 23, they are coming out with numbers. Typically on result day, SBI moves by around 5-7 percent maximum. So we do not think this stock should move down substantially below Rs 2,200 but given the way volatility is there in markets, we want to be slightly more conservative. So we think traders can sell 2,100 strike Puts of SBI because implied volatilities of SBI has increased from around 34 percent to 39 percent. The price of those options have also increased to around Rs 6-7. So, one can sell 2,100 Puts that translates to around Rs 900 of cash inflow and you make Rs 900 if SBI remains any value above Rs 2,100.

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