Sell Nifty 6000 Call, 5800 Put of Dec series: Nirmal Bang

The Nifty Futures rallied more than 5% in the second half of November. The markets were buoyed by the passage of the bill on multi-brand retail in the winter session of the parliament as well as the government's proposal to set up the National Investment Board (NIB), which will monitor and advise ministries on expediting projects.

However, the rally in the Indian equity markets was mainly due to two factors, namely announcement by ratings agency Moody's that India's credit outlook was "stable" and upward revision of India's GDP growth forecast by the global investment banking and securities firm Goldman Sachs.

In its annual credit analysis on India, Moody's maintained a stable outlook for India with its Baa3 rating. But it maintained a negative outlook for Indian banks. Goldman Sachs announced that India's GDP growth is expected to accelerate from 5.4% in 2012 to 7.2% in 2014. The investment bank has forecasted that the Nifty is likely to touch 6,600 points by December '13.

In line with street expectations, India's gross domestic product (GDP) growth fell to 5.3% in the second quarter (July-September) of 2012 -13 from 6.7% in the same quarter during the previous fiscal, on account of poor performance in the manufacturing as well as the agriculture sectors. The Put Call Ratio - Open Interest (PCR-OI) for Nifty Options is hovering between a very narrow range of 1.11 and 0.96 since the past fortnight.

The current PCR-OI stands at 1.05 (as on 7th December) and going forward we see this PCR consolidation to continue between 0.90-1.10, maintaining a neutral view on the market till the end of the December expiry.

On the Nifty Options front, the December series' highest OI build up is seen at 5600PE and 6000CE, which is slowly shifting to 5800PE and 6000CE. Looking at the current Options scenario, we expect the markets to consolidate between the narrow range of 5,800-6,000 and breach of this on closing will further decide the trend of the market.

India VIX, which measures the immediate 30-day volatility in the markets, is trading between the range of 13-16 (currently at 14.50) (as on 10th December)). But going forward, we believe that it has already formed a strong base near 13.9-14.1 and we may see an upward breakout. Levels of 19 and 22 can be seen on India VIX in the coming months.

Technically, Nifty closed marginally in the green. However, the Nifty managed to close marginally above the 5,900 mark for the first time since 13th Apr '11. Till the time 5,840 levels are intact there is a valid possibility that the Nifty may make an attempt to scale higher to the 6,050/6,100 level.

The daily chart shows that the Nifty is trading in the rising channel, indicating that the Nifty is in an uptrend. The rising channel indicates that the Nifty has a strong support of the 5,750 level for long-term positions. Short-term technical parameters indicate that the Nifty has a support of 5,700 mark, which is supported by the 50-DMA.

The weekly chart indicates that the Nifty is trading in higher top-higher bottom, indicating a potential up move in the coming trading sessions. Important oscillators RSI and MACD are in a buy mode. In the coming trading sessions, if the Nifty manages to close above the 5,950 level, then the upward trend may confirm for a target of 6,050/6,100.

In an alternative scenario if the Nifty breaches the level of 5,700 on a closing basis, then a further sell off till the recent swing low of 5,550 is likely. Traders having long positions are advised to book profits on every rise with a view to re-enter on dips or hold existing long positions and protect their capital with a strict stop loss of 5,800 level.

The Bank Nifty has confirmed the bullish breakout by closing above its recent high. The recent rise was accompanied by a sharp rise in volumes, which indicates a bullish bias and continuation of the uptrend. The index is likely to test 12,750 and 12,900 levels in the near term. There is an immediate support at the 12,120 and 11,980 levels on the downside.

Options Strategy: Short Strangle on Nifty

It can be initiated by 'Selling 6000 Call and 5800 Put of the December series'. The net combined premium inflow comes up to around Rs 70-75, which is also the maximum profit (that is if the Nifty December series expires between 5,800-6,000 levels). The break-even stands at 5,730-6,070 levels. There is unlimited loss beyond the break-even range. Traders can square off their strategy when the combined rate of the Strangle crosses the 110+ mark.

Source: Nirmal Bang's Beyond Market

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