Nifty to be rangebound, focus on select stocks: Investworks

In an interview with CNBC-TV18 Amit Trivedi, co-founder, Investworks.in shared his outlook on the Futures and Options (F&O) segment and his view on Bharat Heavy Electricals (BHEL).

Also read: Nifty may retest 5200-5400; hold pharma, IT: Sandeep Shah Below is the edited transcript of Trivedi’s interview to CNBC-TV18. Q: Would you take a fresh short position at the start of trade? A: It is a complicated situation around us and after September, we have rallied a bit about 7-8 percent and given up some of the gains at today’s level. The US macro is slightly stabilising and China is improving. This is a long expiry that we have. So, the implied volatility of Nifty are not suggesting much movement at around 22 percent implied volatility. For this month, the focus will move to individual stocks. If one looks at Morgan Stanley Capital International (MSCI), Asia Pacific is trading at around 13.5 times and developed markets are trading at 15-15.5 times. At valuation levels, we are fairly priced. So, we need to see if earnings are coming. This month would be very important and focus would be stock-specific. On the lower-side, Nifty would be at 5,500 and at 6,100 on the higher side. Q: Is there a strategy on the Nifty, this morning would you have any options trades or Futures trades on the 5,800 or the 5,900? A: Not at all. The market can be volatile. For example, if one is not doing any delta hedging in trades, then one will make losses but one can go slightly out of the money. One can do 6,000-6,100 ratio trade which is one can buy 6,000 Calls and sell two 6,100 Calls. There is a cash inflow of around Rs 8-10 in this strategy and if market goes up, one will make money because one is long the 6,000 Calls and if market only goes above 6,200 then you will start making losses, probability of which is quite low in this series.

Q: You have a trading call on Bharat Heavy Electricals (BHEL); tell us more about this stock? A: BHEL is moving broadly in a range of Rs 128-150-155 on the higher side. We think there is no substantial positive news on the stock but given that it has fallen from Rs 200 levels to Rs 100 level, it has bounced back and should consolidate or marginally go up from hereon. Our strategy is to buy 150 strike Calls of BHEL and sell 160 and 170 strike Calls. Currently there is an investment of around 90 paise in this trade, so we would advice traders to hold on. Whenever they spread narrows around Rs 0.45 to Rs 0.5 they can enter into this trade. This spread should open up to around Rs 1.5 to Rs 1.6 in the next coming days.