The Hindu Business Line : Nifty may remain range-bound

Last week, we had said that the Nifty would see negative sentiment with an accelerated pace of volatility levels. We had indicated the support and the resistance for Nifty at 3120 and 3380 respectively. Though it dipped below the support level to touch a low of 2896, it bounced back sharply to rule currently at 3209 points.

Exceptional week

We had advised investors to go short on Nifty; those who had gone on Nifty would have booked windfall profits on the first day itself. However, with brokers demanding margin payments on hand, investors might have faced an uphill task to adopt any strategy.

With the Nifty bouncing back, we expect the Nifty to remain in the consolidation mode around current levels.

The immediate support and resistance levels for the Nifty are at 3165 and 3240.

A break from these levels could see the Nifty move sharply in that direction.

Expecting a slight bullish outlook, we advise investors to consider call-ratio backspread strategy.

This can be initiated by buying 3500-strike calls @ of Rs 34.75 and 3400-strike calls @ of Rs 54.45 and selling 3000-strike calls @ of Rs 243.

The net premium collected in this strategy is Rs 152 (Rs 243-(35+54)).

However, with brokers still insisting on strict margin payments, initiating this strategy may be difficult.

Alternatively, a plain vanilla strategy could be going long on Nifty futures if the Nifty breaches 3240-50 levels.

In that event, keep the stop-loss level at the day's low level at the time of entering into a contract.

The implied volatility levels witnessed wild swings. Puts IV surged to 47 per cent against the previous week levels of 42 per cent; during intra-week puts IV scaled to a peak of 65 per cent. The calls IV, which surged past the 100-per cent mark, however, dipped to 42 per cent (103 per cent); the intra-week high of calls IV is 92 per cent.

The IV levels above 40 per cent mark show that options are still trading rich.

The annualised volatility on Nifty also dipped to 61.29 per cent (96.91 per cent); it still rules above the implied volatility levels.

This signals a volatile trend for the Nifty though not to the extent seen in the previous week.

Open interest put/call ratio increased to 1.06 (0.72), while volume-wise PCR dipped to 0.58 (0.63). The dip in volume PCR indicates low-level activity on the option side; the increase in open interest PCR indicates that still some traders expecting a downtrend in Nifty.

Stock futures

SBI: Last week, we advised investors to consider shorting SBI with a price level of Rs 830-825. In line with our expectation, the SBI dipped.

The outlook for SBI appears negative. Investors can consider go short on SBI futures if it dips below the 850-mark.

In that event, it could dips to 830-825 and further to 775 levels.

The market lot is 500 contracts. The stock hit a low of Rs 798 during Monday trading itself.

Reliance Industries: The outlook for Reliance appears positive.

Investors can consider going long on Reliance futures keeping the stop-loss at 945 or at day's low level at the time of entering into a contract.

The stock could go up to Rs 1,005-1,015 level.

As market lot is 600 contracts, we advice investors to tread cautiously as any swing could pinch them quite sharply.

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