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K.S. Badri Narayanan

Nifty futures failed to recoup its weekly losses despite the handsome gains recorded on Thursday and Friday.

The index August futures closed the week with a loss of 0.85 per cent against the previous week’s close at 4,575.

It also ended with a premium over the spot, which ended the week at 4,528.80.

The Nifty September futures closed at 4,540 and saw a rollover of about 30 per cent.

The high premium over the spot suggests that a good majority of the rollovers may have been on the long side.

Open interest for Nifty August futures declined to 1.94 crore shares (2.19 crore shares).

Among the stock futures, the action was mainly centred on momentum players such as IFCI, Unitech, Aban Offshore and HDIL.

We had advised traders to consider short-straddle strategy (for a maximum of two days) using 4,600 strike.

Considering the opening (Monday) and the closing prices (Tuesday) of 4,600-call and put, the position would have ended with in the neutral no-loss no-gains zone.

There is no change in our viewpoint on the Nifty futures. While it may make another attempt to cross 4,630 level (on a closing day basis) in the coming week, we feel it may be difficult for it to breach past it. However, if successful, the up move could take the Nifty futures above 5,000. The next resistance zone appears at about 5,200. On the other hand, 4,365 acts as a strong support. A downswing from this support has the potential to weaken the Nifty sharply to the 4,000-mark; though in between 4,250 could act as a minor support level. On the whole, the coming week may only see the Nifty futures struggle in a narrow band.

Call options at strikes 4,500 and 5,000 September turned active last week, while among the puts, 4,200, 4,300 and 4,400 September strikes ruled the trades. Among the August strikes, 4,400 put saw an accumulation of 14.27 lakh shares, indicating that the Nifty could face a strong support at 4,400. On the other hand, 4,500 calls shed 15.43 lakh shares, suggesting that call writers may have been forced to cover their position.

The volatility index, which climbed above the 70-point mark during intra-day trade last week, slipped to 38.51 points against the previous week’s close of 44.24. This indicates accumulation of calls and squaring up of puts.

Traders can consider going long on the Nifty futures with a stop-loss at 4,365. The stop-loss been given at wider range intentionally as the market has the potential to swing wildly. Besides, this being the settlement week, volatility would be high.

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on August 20 declined to 32.85 per cent (33.81 per cent). They were mainly buyers all through the week. Their index futures holding increased to Rs 12,251.43 crore (Rs 10,520.05 crore) and stock futures to Rs 20,712.29 crore (Rs 19,296.07 crore); their index options holding jumped Rs 24,510.88 crore (Rs 22,395.64 crore).

More Stories on : Derivatives Markets | F & O Outlook

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