F&O Manual: Exasperation as volatility spoils trades; opportunity in individual stocks

After a sharp drop the previous day, low-level buying pushed the Nifty higher on January 5 morning but the gains were capped. The index rose 47 points or 0.26 percent to 18,089.95 and the Nifty futures rose 57.15 points to 18,160.20.

Traders were seen unwinding their positions across strikes, with most unwinding happening at 18,200 followed by 18,300. Some fresh writing was seen in deeper strikes on both sides.

Since the market has been volatile, traders said they are finding it difficult to make money. Ankush Bajaj, a trader who took some non-directional trades early in the morning, said his stop losses got hit immediately.

Now, he is in a wait-and-watch mode and not taking any trades. Bajaj said his outlook on the market is on the short side. He has another trade running the previous day where he has sold Nifty.

Traders are also being cautious ahead of the upcoming earnings season where any surprise will induce volatility. Analysts have warned traders against risky trades in monthly contracts and suggested weekly contracts if they have the appetite.The Bank Nifty was down 0.4 percent, as investors continued to book profits. The index has been on a downward trend for two days now.

The sectoral trend was not concrete either. Open interest (OI) remained flat for most of them. Chemicals and finance saw some accumulation of OI as the prices fell, a sign of short buildup in these sectors.

Many traders are finding opportunities in individual stocks.

Seema Jain, a Sebi registered research analyst and a trader, said she is seeing opportunities in names like Balkrishna Industries, Apollo Tyres (above Rs 329), NTPC (above Rs 170.25), M&M Finance (above Rs 239) and Dabur (above Rs 569).

Bajaj Finance saw the largest increase in OI initial trades with a large drop in price–a bearish sign, while Indigo and Persistent System saw a drop in OI.

Short buildup—when prices fall but OI rises—was also seen in Bajaj Finserv, AU Small Finance Bank Piramal Enterprises and Info Edge.

On the other hand, long buildup—when price and OI both rise—was seen in Balkrishna Industries, Britannia, Marico and M&M Finance.

Disclaimer: Trading in futures and options markets is extremely risky. Traders and experts mentioned above may not be SEBI registered. Hence trades they have taken should not be construed as investment or trading advice. Please consult a financial adviser before taking any trades.