Today the Nifty dropped over 60 points and closed the trade at 5851.20. Manoj Murlidhar of IIFL told CNBC-TV18 if one wants to short the index tomorrow, then they should place the stop loss at 5874.
Today the Nifty dropped over 60 points and closed the trade at 5851.20 . Manoj Murlidhar of IIFL told CNBC-TV18 if one wants to short the index tomorrow, then they should place the stop loss at 5874.
If one is using a premium of 18-20 points odd, then place the stop loss at 5890 on futures, he added.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: What are you recommending in terms of strategy to investors considering that the VIX has gone up considerably?
A: The VIX is inversely correlated to the market. This analogy happens only 57 percent of the times if you take data all the way from 2008 till date. If one looks into this month, FIIs on the derivative side, specifically the options side have bought close to Rs 12000 crore odd in the index options, may be in the entire derivatives side.
The cash buying is not more than Rs 4000 crore. So the ratio is 2:1 in the derivative side and 1 in the cash market. In the last 13 months the ratio was opposite. We used to see two portion in the cash market and one in the derivative side. Now this would happen because even in index options, 60-65 percent of the volumes are done by delta traders. Delta traders are the ones those who don’t have any market specific calls.
However, they take a call on the volatility which definitely is a parameter of the VIX. On the day of the Budget also there were lots of short vega trades. Last Friday the Nifty was up 85 points, but the VIX was also up. That was because of the good buying in the 5900 put with 24 lakh on last and 6000 put also was somewhere close to 14 lakh.
The Nifty has fallen not more than 50-60 points after put buying. An institution would not really buy an option just for 1 percent move in the index. To square off the short vega trade is what the move was.
So, till now 17.7 is a very important level on VIX. The most important part is because the US VIX the CBOE VIX is at 12.2 and we have a correlation to that VIX. Once that goes under a negative divergence, one will see the pressure coming in. That is what we are seeing from the end of January. Till the time India VIX does not cross 17.7 and get into a mode saying that the Nifty is going to correct 8-10 percent odd, would not really be my cup of tea.
I would rather stay with Nigel because I was listening to him. According to him, lots of long strangles has been happening. So, volatility till 17.7 is what people are trading in. Beyond 17.7, we might go in for a big correction.
Q: If in case somebody wants to short the index tomorrow where would you place your stop loss?
A: It has to be the weighted average price of today. So, somewhere close to 5874 at least on the spot. If one is using a premium of 18-20 points odd, then that would be somewhere close to 5890 on futures, to keep stop loss. Good writings have happened in the 5900 call. So, that would definitely act as a resistance and after that one will definitely see good short covering coming in.
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