Nifty to hover around 5900-6100 in Jan series: Fin Stream

As the third quarter earnings pick up, the Indian equity benchmarks are witnessing an upward trend. Amit Trivedi, Director of Fin Stream Financial Advisors believes the Nifty is going to trade in the range of 5,900-6,100 for the January series as the focus shifts from the market to individual stocks, as Q3 performances occupy centrestage. In fact, he feels the market may actually consolidate around these levels.

Reliance’s robust Q3 results boosted the stock and Trivedi thinks it could be an interesting stock which can be traded with the options route. According to him, it is not likely to move below Rs 840 in the January series.

As far as the Bank Nifty is concerned, Trivedi is of the view that the Bank Nifty is going to consolidate around 12,700. “At most, it is going to 13,000-13,100 levels before the RBI decision actually comes in,” he added.

Here is the edited transcript of the interview on CNBC-TV18.

Q: How are you calling it for the Nifty first and what kind of stance do you have right now on the Nifty in terms of trading it?

A: Our view for Nifty remains the same. It is broadly moving in the range of 5,900-6,100 kind of levels for the January series as the focus has shifted from Nifty or markets to individual stocks and the result performance that is going on. We think that the market should remain here. In fact, globally also markets are at their multi-year highs and Volatility Index (VIX) on S&P is also down to around 12.5 levels. We think Indian markets also should consolidate in this broad range of 5,900-6,100 levels.
 
Q: From a trading perspective what would be a good way to approach Reliance now?

A: We think using options could be an interesting way of approaching Reliance. The stock has moved to around Rs 900 and probably there could be some move upside today. Rather than going into calls, we would go and write puts of Reliance Rs 840 strike, which is currently trading around Rs 2 to 2.5 on a margin deployed of 35,000 and that translates to around Rs 500 or 1.5 percent returns, as we don’t expect Reliance to go down below Rs 840 in the January series.

Q: Mahindra and Mahindra (M&M) has been under quite a bit of pressure in the cash market. How would you trade that one?

A: Since the diesel decontrol news came out and slightly before that M&M has been moving from around Rs 940 levels down to around Rs 885-890 levels on Friday. We think this underperformance should continue for some time. In fact, investors can play this underperformance by executing a ratio trade on M&M.
 
Investors can buy at 920 strike call, at around Rs 7.5 and sell two 940 strike calls at around Rs 8. So you get around Rs 0.5, which translates to Rs 250 per contract on a margin of 35,000. You are making at least 0.8 percent and if there is a small relief rally in M&M, you tend to benefit more because you have bought 920 strike call options.
 
Q: The big star on Friday was Oil and Natural Gas Corporation (ONGC). You have a trading idea on that one as well?

A: ONGC has really moved up to around Rs 340 levels. We think trading using options should be slightly complicated because the option volatility of ONGC has to around 43 percent. So buying ONGC at these prices, buying a 340 straddle for example, would start making losses the moment the volatility goes down and it will happen if the stock stabilises.
Selling straddle at 340 again becomes difficult because ONGC has moved in a new territory. We would not like to go and trade in ONGC at this point of time.
 
Q: What about the Bank Nifty? What kind of trends do you see there for the rest of the series?

A: For the rest of the series, as there is the Reserve Bank of India (RBI) policy just one day before expiry, it will keep the option volatilities quite high. At around 12,700, I think the Bank Nifty should consolidate in this broad range. At most, it is going to 13,000-13,100 levels before the RBI decision actually comes in.
 
Again we have a ratio trade in Bank Nifty. We think investors can buy 13,200 call option at around Rs 24 and sell two 13,300 calls trading at around Rs 15. So you make around Rs 6 in the trade. Your losses will start if Bank Nifty starts trading above 13,400, which is approximately 6 percent from current levels.
 
Q: How are you positioning yourself for the rest of the series in terms of a strategy for the index? What would be a good options strategy to go with?

A: There are two strategies which investors can go for. One, for the immediate January series and the other is for the February series. For the January series, as we do not expect the range on the downside to be below 5,900 levels, we think investors can sell 5,800 put. Extremely conservative investors can sell that 5,800 put at around Rs 4. So you still make around 1 percent return on a margin deployed of Rs 18,000 and slightly aggressive investors can sell the 5,900 put around Rs 10.

For February, we think investors can trade a put ladder strategy in Nifty, which is, if you buy 6,000 put at around Rs 61, you sell one 5,900 put and one 5,800 put at 38 and 21. Therefore, Re 1 is invested in this particular trade and as the market moves, you will get carried in this trade and this trade of Re 1 will open up to around Rs 10. At that point you can unwind and make Rs 500 on a margin deployed around 25,000 leads to 2 percent absolute return. Your losses will start if Nifty starts trading below 5,700 levels, which we don’t think is likely to happen in the February series.