The Hindu Business Line : The firm trend may continue in Nifty

Anticipating a positive trend, we had advised investors to consider call back-spread strategy by selling one Nifty 2400 call @ Rs 53.10 and buying two Nifty 2450 calls @ Rs 62 (Rs 31 each).

This strategy would have provided a maximum return of Rs 49 a contract considering the Monday opening prices (Rs 54.50 for 2400-strike and Rs 31 for 2450-strike) and the Friday closing prices (Rs 155 and Rs 106 respectively).

For the following week also, we expect the Nifty to maintain the upward trend though sentiment indicators such as put/call ratio and implied volatility present a cautious look.

If the Nifty sustains current levels and opens on a strong note on Monday, then it could go up to a high of 2610 and may even to 2680.

On the other hand, if it fails to sustain at current levels, it may dip to 2480 and may even to 2420.

As the undertone remains bullish, the possibility of the Nifty remaining in firm territory looks bright.

Strategy: Anticipating a positive outlook, we advise investors to go long on Nifty futures keeping a stop-loss at Monday's low level at the time of entering the deal.

Cautious investors may also consider buying puts to minimise downside risk.

In that case, they may consider buying 2450 puts @ Rs 9.45.

Volatility view: The implied volatility for both puts and calls dropped; while calls IV dropped to 22 per cent against last week levels of 29 per cent, the puts IV declined marginally to 24 per cent (26 per cent).

The drop in volatility levels indicates that the market may remain range-bound.

With the annualised volatility remaining firm around 30-per cent mark, we can expect the Nifty to exhibit a higher degree of volatility.

Put/call ratio: Open interest put/call ratio jumped to 1.86 as against the previous week level of 1.48 and volume-wise put/call ratio to 1.3 (0.97).

The firming up in OI put/call ratio suggests that lot of calls open positions have been closed when the market flared up smartly.

A number of put positions have also been added in anticipation of decline in the Nifty. This paints a negative picture.

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

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