F&O Cues: HSBC Invest expects some short covering today

In an interview to CNBC-TV18, Karun Mutha of HSBC Invest Direct spoke about the current trend in F&O market.

Also read: This is bear market rally; see downside ahead says Sukhani Below is a verbatim transcript of the interview: Q: What is the Nifty strategy on the first day of the series? A: It has been very clear. the June series was a huge built up of short positions and what started with seven long is to one short contract for the foreign institutional investors (FIIs) come down to half a long contract to one short contract and that is why we see a huge sell figure of around Rs 10,600 crore for the June series by the FIIs themselves with an open interest (OI) increase close to around Rs 5,000 crore. A lot of short was built up in the June series and eventually when we were at the triple-witching day - the expiry day - yesterday, we saw short covering happening. The rollovers were not that exciting. We have seen in the marketwide rollovers of around 43 percent and the Nifty also slightly down, which clearly depicts that the rollovers were not enthusiastic and in fact the longs were seen at poor rolling over. The impact of this is definitely to be seen in the July series, which is starting with a lower figure of the marketwide in terms of value and with the newsflow that is coming around, we will see some more bit of short covering happening today. As the international market suggests, we are going to see a gap up opening and we may see probably some more subsidizing on the volatility index (VIX), which had seen a high of around 22.15 and closed at around 18.65. As we see the VIX has an inverse relationship with the markets. As it continues to slide, we will see the market moving up. I think strategy would be completely to play on the options as we do not find the implied volatility (IV) still falling. We are at the beginning of the series so it would be ideal to go long on some of the Call option maybe out-of-the-money around 5,800 as you see that gap up opening. Write some out-of-the-money Puts around 5,500 similar premiums prevailing at the yesterday's closing levels. I think that should be a good strategy to play on the markets.