F&O: Nifty in 5700-5800 range, sell OTM options, says HSBC

In an interview to CNBC-TV18 Karun Mutha, HSBC Invest Direct shared his outlook on the futures and option market. He sees the Nifty trading in a tight range of 5,700-5,800 levels now. So, he suggested selling out of the money options.

"That would leave one with a lot of money because we have couple of holidays in the next weekend; premiums will dwindle down really very fast in one's favour if one is on the right side, he elaborated. Further, he added that there are no key indications which justify shorting the market at the moment. Also read: Downside limited, upside for Nifty at 5815: Manghnani Below is the transcript of his interview with CNBC-TV18 Q: What is your view on how to approach the index today? A: For past four trading sessions, FIIs have become marginal sellers. Those numbers are pretty small, ranging from Rs 100 crore to almost Rs 300 crore. But, if one closely monitors the open interest, it has just started declining; this indicates that they are unwinding their long positions. But, we have not seen big time shorts coming up into the markets. So, there are no signals, which makes one think that do we really need to go short on the market at the moment. The second crucial factor is the volatility index. It has been in the range of 13.5- 15.5 percent. This is fear and greed factor indicator. At the moment, it does not indicate that there is some fear languishing into the markets. The volatility index is likely to be in this 13.5-15 percent range. Even yesterday there was a drastic fall at around 14.5 percent. So, there is not much activity is seen on the Options side as well, which constitute almost 80 percent of market volume. The implied volatilities are at one of the lowest level compared to what has been seen historically. So, here the activity is really dull. Volumes have gone down. We are in a very tight range of 5,700 to 5,800. The best strategy would be to write out of the money Options. That would leave one with a lot of money because we have couple of holidays in the next weekend. Premiums will dwindle down very fast in one's favour if one is on the right side. Q: You are buying some of the pharmaceutical names like Dr Reddys Laboratories and Cipla now? A: Yes, Pharma has been one of the most stable packs. Even on couple of days movement that we have seen, there have been accumulation signs have been seen particularly in frontline stocks like Dr Reddy’s or Cipla. Wherein post the numbers, which were also decent we have seen some good accumulation happening. In fact if you look at the open interest particularly stocks like Dr Reddy’s and Cipla, the fall in open interest even on a correction is very marginal. So we have seen a long liquidation happening to only a very insignificant extent. These are stocks which are likely to be recommended to accumulate at dips and probably there is some steam still left out. Particularly with respect to the derivatives data or the data which is seen on the open interest seems to suggest that there is some steam still left out and probably may provide an upside in the defensive state of steam that we are into. Q: You have a buy on ACC today, what kind of a target price would you keep there? A: ACC is an accumulation on dips, so if the markets correct a little bit today morning I think Rs 1460 should be a good accumulation zone. We will probably see a 5-7 percent upside in ACC stock. Further more technology stocks, particularly in the frontline stock like TCS we have seen a largely stable price band of around Rs 1320-1330. It should again be in accumulation zone of around Rs 1310-1320 levels and that should give a 5 percent upside. Largely open interest on that stock has also remained stable and stagnant when a little bit of unwinding has been seen and that should see a decent up move.