The Hindu Business Line : Nifty may remain range-bound

Open interest positions, which touched a nine-month high of Rs 68,428 crore recently, dipped to Rs 44,650 crore after hitting an intra-week high of Rs 65,587 crore on settlement day (February 22) and against last week's position of Rs 62,058 crore.

We had advised investors to go long on Nifty and had said that the recommendation was valid for two days. Nifty futures touched a high of 4183.40 on Monday, against the opening of 4165.15, thus providing some profit opportunities.

The undertone turned weak for Nifty futures. It finds resistance at 4085-90 and support at 3830. Only a move above 4145-50 would reinforce the bullish signal. A fall below support level has the potential to take Nifty to a low of 3700-3705.

Expecting a sluggish phase this week, at least for the first couple of days, we advise investors to consider short straddle strategy. The short straddle position is created when an investor sells the same number of call and put options at the same strike price and expiration date. This strategy is best used on sideways or stagnant stocks. This can be constructed by writing 4000-strike of call (Rs 105.2) and put (Rs 174.15) with a net credit of Rs 279.35. The recommendation is valid only for a maximum of two days and risk-averse investors can stay away from the market.

As it is the Budget week, the chance of Nifty turning volatile is higher . The investor may be staring at a loss if the stock swings quickly in one direction or the other.

Put/call ratio

Open interest put/call ratio increased to 1.43 against the previous week's 1.32, while volume-wise PCR decreased to 0.85 (1.13). The increase OI put/call ratio suggests that many traders have kept open their positions in expectation of further fall in Nifty. The drop in volume PCR suggests that not many participated in the market when it fell sharply on Friday.

Implied volatility:

IV remained same for both calls and puts. While puts IV increased to 26 per cent from last week position of 25 per cent, calls IV inched up to 26 per cent (24 per cent). The equal value of calls IV and puts IV indicates a flat trend for the market.

Backwardation

Nifty's March futures now dipped into a backwardation after ruling in premium (quite substantial during intra-week); it now trails Nifty spot by 5.2 points, suggesting that a lot of short positions was added, when it tumbled sharply on Friday.

Stock follow-up

Bharti Airtel (Rs 793): We had presented a positive outlook on the stock with support at the Rs 760 and a resistance at Rs 800; a move above Rs 800, we had said, could take the stock to Rs 835-850 levels. The stock reached a high of Rs 829 during intra-week before slumping to Rs 756 on Friday.

We had advised investors to go long on the counter with a stop loss at Rs 800. Adjust the stop-loss suitably so as to maximise profit. Those who had gone long on Bharti Airtel would have earned a profit.

Reliance (Rs 1,413): Though the undertone appears to be positive for the stock, we expect it to slip into overbought zone. We advise investors to buy Reliance 1,350 March put option at a price of Rs 22.15. The maximum loss in the strategy could be Rs 3,300 (Rs 22.15 x150 contract size) while the profit is unlimited if the stock weakens in the days ahead.

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on February 22 jumped to 36.57 per cent against last Thursday's position of 32.91 per cent. This indicates decrease in retail participation as market swung wildly last week. FIIs turned net sellers during later part of the week in the F&O segment.

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

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