The Hindu Business Line : Volatility may continue

NIFTY outlook: Last week, we had anticipated a volatile trading pattern in Nifty and it moved in line with expectations. To benefit from the volatile trend, we had advised investors to go short if the Nifty dips below 2350 levels and had said that it could lead to 2335-2325 levels.

On the contrary, if the Nifty breaches 2370-2375 levels, we had said it could reach up to 2385-95 levels. Those who had gone short would have made decent profits last week as the Nifty touched an intra-week low of 2303 by Tuesday itself.

This week also we expect the Nifty to exhibit a high degree of volatility. Nifty has been facing strong resistance at the 2385-90 levels and support at the 2350 level.

Strategy: As the strategy is to take advantage of small reversal in prices, the position may run counter to the primary trend. Protective stops are, hence, important. Investors are advised to go long on Nifty, if the spot Nifty is able to sustain above 2385 level; in that event it could go up to 2400-2410.

In contrast, if Nifty is unable to sustain 2350, then it could dip to 2325 and 2315 levels. For the long position, stop-loss can be placed at 2385 while for short positions, the protective-loss could be the day's high level at the time of entering deal. The possibility of the latter happening looks bright.

Volatility view: The implied volatility of puts and calls improved marginally; the puts IV increased to 18 per cent from the last week figure of 16 per cent while that of calls to 19 per cent (17 per cent). The marginal gains implied volatility levels suggest a flat trend.

The annualised volatility, however, rose to 20.63 per cent compared with the previous week's figure of 18.34 per cent, indicating the possibility of a volatile trend.

Put/call ratio: Open Interest put/call ratio improved sharply. While the volume-wise put/call ratio on Nifty declined to 1.03 (1.56), the open interest PCR jumped to 1.82 (1.66).

The decline in volume PCR indicates substantial squaring up activity on the calls side when the market recovered during later part of the week. However, the jump in open interest PCR indicates traders are keeping the puts position open in anticipation of a decline in the Nifty.

(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page