Analysis: Market overbought, Nifty may not top 6000
The bulls are betting that the recent rally has captured most of the good news on QE tapering, and that even if the US Fed takes a dovish stance, the Nifty will find it tough to cross 6000 in this series.
September 17, 2013 / 20:03 IST
The options activity ahead of the FOMC decision is pretty interesting. The Put Call ratio of 1.31 and the consistent futures premium of 25 points on Nifty futures seem to reflect the overbought nature of the markets. However, there is another angle to this data. If you take the 10 most active strikes with highest Open Interest (OI), this ratio actually goes up further to 1.87. In fact, 7 out of 8 top strikes are all Puts with 6000 Call being the only Call strike part of the list.
The Put strikes with most Open Interest are 5300, 5600, 5800 and 5700 in that order. It can be safely argued that the 5300 Put can be attributed to traders plain hoping to get lucky, or those stuck with the position taken immediately after the August expiry.Also Read: Worst of outflows yet to come; macros to get uglier, says HDFCWhat’s interesting is the kind of activity we have seen at 5600-5800 Puts and 6000 Call. Perhaps the bulls are betting that the recent rally has captured most of the good news on QE tapering, and that even if the US Fed takes a dovish stance, the Nifty will find it tough to cross 6000 in this series. This is evident from the skew towards Call writing at 6000. On the other hand, we have seen some bear Put spreads, where traders have bought 5800 Put and at the same time lowered the cost by selling either 5600 or 5700 Put.In a nutshell, the market is a bit overbought and is facing resistance at its 200 day moving average since Friday. Any dovish outcome from Fed and a global rally may mean some more gains but capped at 6000, while any disappointment may just provide bears with a chance to comeback strongly.(Posted by Anuj Singhal) Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
