SENSEX NIFTY
Feb 20, 2013, 01.19 PM IST | Source: CNBC-TV18

Pick oversold stocks, trade long: ICICI Direct

In an interview to CNBC-TV18, Amit Gupta, ICICI Direct says one good way to play the market is to pick up oversold stocks where there are heavy shorts and start trading long in them.

Amit Gupta

Head- Derivatives, ICICIdirect.com

Expertise : F&O

More about the Expert...

In an interview to CNBC-TV18, Amit Gupta, ICICI Direct says one good way to play the market is to pick up oversold stocks where there are heavy shorts and start trading long in them.

He believes 6040 on the higher side and 5900 on the lower side possibly may remain the range for another few days.

Read more: Bond markets may see sharp upmove on auction cancellation

He further adds one could see bounce happening in stocks like State Bank of India (SBI), Larsen and Toubro (L&T), Bharat Heavy Electricals Limited ( BHEL ) and Tata Steel .

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

Q: How would you approach the Nifty now?

A: The market has recovered from a good support area close to 5820-5840. 59 Call Options which had seen good amount of short additions during this period, now above 5900 you can start seeing some closure of Call Options at 5900, which can provide some sort of cushion whenever it is coming down.

One good way to play in the market is we need to pick up the stocks where there are heavy shorts, which are quite oversold and start trading long in them. Stocks like State Bank of India (SBI), Larsen and Toubro (L&T), Bharat Heavy Electricals Limited (BHEL), Tata Steel have good number of shorts and are also near good support areas, so you can see some bounce happening in these kinds of stocks.

On the higher side, I still believe that 6,040-6,000 still remains a key critical resistance area because at the start of the series, we have seen formation of short positions by the Foreign Institutional Investors (FIIs) around that area. So, I believe 6040 on the higher side and 5900 on the lower side possibly may remain the range for another few days.

Q: Metals have been the underperformers, do you have a strategy on Hindalco Industries today?

A: From Rs 130-115 there was very heavy short addition, almost more than 50 percent in Hindalco. But when it was falling from Rs 115-110 we saw that there was no more addition rather there was just closure of positions. That means that traders possibly were thinking that the downsides maybe limited in the stock. The stock on numerous occasions has reverted from Rs 110 in the last one year or so.

I believe that because of this closure it is possible that the stock may again go back to Rs 115 or Rs 116. If you look at the Rs 110 Call Option it has seen some closure of positions in the last session. It is possible that this closure may again continue for another couple of sessions or so. So you go long in Rs 110 Call Option, look for a target of Rs 6 which is currently at Rs 3, keep your stop loss at Rs 1.5. I think before expiry this maybe a good trade to play on the short covering part.

Q: Are you beginning to see any early positions being built for the next series because in your market FIIs have actually been sellers for quite a while now?

A: In the market the people are playing on the long volatility part in the month of March because in this series we have the Budget on the day of expiry, so there is no point of going with a long volatility in the Feb series.

One trade which is going very good right now is sell the near month Options and buy the next month Options. That is why the calendar spread, which I have today, is Nifty 5900 Put; if somebody can sell, of the near month, which is available somewhere around Rs 60-62 and buy the Nifty 5900 Put of the next month, which is somewhere around Rs 105. Then what may happen is once you are going towards expiry, even if market starts coming down little bit, you will make money because of the time decay in the Nifty 5900 Put of the near month.

But of the next month, since March Options are seeing volatility moving up continuously due to Budget and monetary policy in the mid-March, I believe it maybe a good one where you go long in the volatility of the next month and short the volatility of the near month by doing this strategy.

Q: You have got a strategy on McLeod Russel today?

A: The stock is at lifetime high now and that clearly shows the inherent strength in the stock. However, it did not move to lifetime high immediately. It consolidated from the month of November in the range of Rs 340-370, and now it has taken out Rs 370.

Looking at the delivery pick up, it was good around Rs 355-360. The 50 day moving average was also around Rs 355, from where it has bounced back. The open interest during this consolidation has come down again by 15-20 percent. So, it gives me a sense that there maybe some more short covering possible in the stock towards Rs 395. Utilize the decline towards Rs 370 to go long and keep your stop at Rs 360.

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