Nifty future at critical stage

After weeks of being in the losing streak, the Nifty future managed an impressive turnaround, putting in a neat 3.75 gains on the table. While a bulk of the upsurge may have been helped by the squaring-off of short positions; that the week also saw fresh accumulation of Nifty futures suggests a turnaround in market sentiments too. The Nifty future now trails Nifty, which ended at 2948 points, by about six points only. That said, trading volumes continued to remain moderate at about Rs 31000 crore.

Recommendation follow-up


We had given three recommendations last week: 1) Shorting Nifty future with a stop at 2950, 2) Short straddle using 2800-strike for a maximum of two days and 3) Buying March 2500 put. All the three strategies would have ended in the negative.

Outlook


The Nifty future is at critical stage. Despite strong gains on Friday, when the Nifty future crossed its crucial resistance at 2950, albeit only intra-day, we continue to feel that Nifty future will encounter strong pressure going forward. That in spite of the strong show on Friday, Nifty future failed to close above 2950-level validates our view.

However, if Nifty future manages to close above 2950 convincingly, then it may face the next resistance at around 3050 first and then at 3250. On the other hand, if it fails to hold to the current levels and dips below 2875, then Nifty future may find a strong support at 2750.

Option monitor


Among the options, 2900 call and 2800 put shed open interest positions. Though 3000 call was very active, most of the accumulations were on the short side.

The Nifty 3100 call also witnessed short accumulations, indicating that Nifty could face strong pressure at higher levels. On other hand, there was significant accumulation of puts for strikes 2700, 2600 and 2500. Besides, the steady accumulation of options at Nifty March 2500 also suggests a downward bias for the market.

Volatility Index


India VIX or Volatility Index, which measures the immediate expected volatility, has weakened to 43.31 from the previous week’s close of 50.65. However despite the fall, the volatility index managed to touch the 50-point mark many times over during intra-day trades. This suggests that some traders may still be sceptical about the current rally.

Recommendations


In the coming week, market may begin on a soft note. With expectations galore on the interim budget, the Nifty future may be subject to heightened volatility. The break-out however may set the direction for Nifty future for the ensuing weeks. Traders can consider setting a long straddle strategy. This can be initiated by buying 2900-strikes of call and puts (March), which ended last week at Rs 182.4 and Rs 142.15 respectively. While the profit in this strategy can be unlimited, the maximum loss may be limited to the premium paid. Note that this strategy can be kept open for a slightly longer period (say, more than a week). Traders with a penchant for higher risk can also consider buying Nifty March 2500 put.

FII trends


The cumulative FII positions as percentage of the total gross market position on the derivative segment as on February 12 was 33.43 per cent. The FIIs indulged in alternate bouts of buying and selling in the F&O segment. They now hold index futures worth about Rs 7,363 crore (about Rs 6,815 crore) and stock future worth about Rs 12,232 crore (about Rs 11,157 crore). Their index options jumped to about Rs 15,489 crore (about Rs 12,152 crore).