Nifty futures to see high intra-day volatility

It closed the week at 4982, well above its previous week’s close of 4841.8.

The October Nifty futures closed at 4989.8 but saw a rollover of just 19 per cent in open interest. Nifty October futures’ open interest jumped to 61.79 lakh shares (43.37 lakh shares), while September futures’ position declined to 2.53 crore shares over the previous week’s close 2.78 crore shares. However, some momentum counters such as Ispat Industries, Unitech and Reliance Power saw higher rollovers.

Trading action was mainly centred on a few counters such as JP Associates, SBI, Reliance Infrastructure, Unitech, Tata Steel and Reliance Capital. In terms of sector preferences, banking, metal and realty space continued to witness steady accumulation.

Follow-up

We had presented two strategies: a) Going short on Nifty futures and b) bear put spread between Nifty strikes 4,700 and 4,800. Both the strategies ended in the negative. The strong bullish undertone in the market has the potential to take Nifty futures to 5250 levels.

Outlook

Only a dip below 4700 would negate our view, in which case the Nifty futures could weaken to 4250. That said, 5250 may also pose a strong resistance. With the coming week (shortened one – Monday holiday) being the settlement week for September series, intra-day swings may be quite sharp. We suggest traders exercise caution while trading in derivatives this week.

Option monitor

While 5000-5400 calls were most active in the October month, puts at strikes between 4500-5000 were the most actively traded. This indicates the broad range in which the Nifty is expected to move in the coming month. However, in the short-term the range may well be narrow what with open interest accumulation in 5200 call and 4800 put. In the current month, 5000 call and 4700 put saw the highest open interest positions.

The volatility index ended lower at 25.86 points against the previous week’s close of 32.51. The drop in volatility index suggests the confidence of bull operators.

We recommend the following strategies for readers

Consider going long on Nifty futures if it opens on a flat note. In that event, the stop loss should be 4900. Traders can book profits at 5100 and 5250 levels.

Another strategy could be a short straddle. This can be initiated by selling 5000-strike of October call and put which closed with a premium of Rs 168 and 175 respectively. Note that short straddles are limited profit, unlimited risk options trading strategies that are used when one thinks that the underlying securities will experience little volatility in the near term. Maximum profit for this strategy is the premium collected and that is achieved when the underlying Nifty hovers around 5000. The strategy is for high-risk traders only.

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FII trend

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on September 18 decreased to 33 per cent (33.63 per cent). They indulged in alternate bouts of buying and selling despite their strong inflows in the cash segment. Their index futures holding increased to Rs 15,782.57 crore (Rs 14,852.67 crore) and stock futures to Rs 24,894.02 crore (Rs 21,636.08 crore). Index options holding also jumped to Rs 35,467.82 crore (Rs 30,326.94 crore).