Alpha Trade: Buy RIL Feb fut; sell Nifty Feb fut

ICICIdirect.com has come out with its report on alpha trading strategy. According to the research firm, one can buy Reliance Industries February futures in the range of Rs 865-875 and sell Nifty February futures in the range of 6105-6125.

Reliance has witnessed the highest concentration of Put options at 840 strike since the inception of the January series. The open interest levels observed closure along with positive move in the stock clearly indicating strong support available for the stock at lower levels. At the same time, with the recent up move, short covering is visible at the OTM 880 and 900 Call strikes, which is likely to augur well with stock upsides.

The stock witnessed closure of 20% positions in the recent up move from 820 to 860 levels. Traders had formed positional shorts in the stock in the last couple of years, which they were rolling from series to series. We believe these shorts are stuck up, which is shown in 20% OI closure recently. Hence, this trend is likely to continue and would provide strength to the stock on declines.

The stock has been witnessing consolidation since December and the VWAP levels of Reliance are placed at 841 levels. Strong accumulation at 840 Put also bodes well with the argument of strong support at 840 levels. Moreover, noteworthy delivery volumes were seen during last month around these levels. Hence, we expect 840 to remain good support on declines.

Due to prevailing consolidation seen in the  broader market, stock specific movement may continue. Since Reliance has been unable to perform in line with the index since 2010, we expect the stock to witness fresh upsides and, in turn, outperform the index.

The current price ratio (Nifty/Reliance) has reverted from the 50% retracement of the downtrend seen since 2004 to 2009. We believe the price ratio of 7.26 will act as a stiff resistance and it may witness some downtrend in favour of the strategy.

Strategy: Buy Reliance February futures in the range of 865-875 and Sell Nifty February futures in the range of 6105-6125

Parameters:
Current Price Ratio (Nifty/Reliance): 6.98
Target: 6.28
Stop loss: 7.32

Institutional holding more than 40% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More