Forget July, trade Bank Nifty in August series: Investworks

In an interview to CNBC-TV18, Amit Trivedi, Co-Founder of Investworks.in spoke about the outlook for the F&O market.

Below is a verbatim transcript of the interview:

Q: What kind of trades are you recommending on the Bank Nifty?

A: Banks have been quite volatile predominantly because of what happened from the US Federal Reserve plus some measures from the Reserve Bank of India (RBI) that have happened over the last few days. Bank Nifty should stabilise at around 11,000 levels give or take another 300-500 points. Because implied volatility has shot up and we don't have any rate cut expectation from July 30 policy, banks should stabilise over here.

In august series, one can go and sell 10,000 strike Puts at around Rs 95-100. It is hardly 7-8 days remaining for July series to expire. So we are recommending to go and trade in the August series in Bank Nifty.

Q: What would be a good strategy for the Nifty for the remainder of this series?

A: Yesterday Ben Bernanke in his testimony mentioned 2 percent consumer price index (CPI) and 7 percent unemployment rate as the target. So broadly, the price discovery mode for global markets including ours is still happening and it will continue to happen. But the volatility will come down. If you look at the CBOE VIX also, the volatilities have come down.

We think Nifty options are trading at quite interesting volatility at this point of time and only for July series one can go and sell 5,800 strike Put options at around Rs 18-19. So you are making close to around Rs 800 if market remains above 5,800 which is 4 percent from current levels, you will make some money there.

Q: You were talking about the banking space, within that you have a strategy on Axis Bank that reports its numbers today?

A: If you look at Axis Bank, implied volatility of the stock has gone up at around 50 percent, which is quite high. Typically it trades at around 32-33 percent. So we think trading ratio in this security could be interesting. One can buy 1,300 strike Call options and sell two 1,320 strike Calls, so there is a net cash inflow of Rs 2 in this trade, which translates to around Rs 500 of cash inflow. On a margin deployed of around 35,000, it is like 1.5 percent returns if Axis Bank trades any value less than 1,340 levels in the next seven-eight days. So you are talking about a very interesting risk reward ratio.