For option strategy in Nifty, one can go with weekly (09th July) Bull Call Spread by buying 10,600 Call and selling 10,750 Call with the premium of 60 points.
Chandan Taparia
Nifty future closed the week with gains of 2.47 percent for the week ended July 3.
A weekly 3.6 percent decline was seen in Open Interest which indicates short covering as the index managed to hold 10,150-10,180 levels and headed towards 10,600 levels.
During the week, Put Call ratio (PCR) based on Open Interest of Nifty remained between 1.19 to 1.61 levels and closed at 1.50 which gives more comfort to bulls in the market. Nifty Implied Volatility (IV) was falling for the most part of the week and decreased from 28 to 22.85 indicates a shift to a higher base in the market.
Nifty started the previous week with Future open interest of 12.46 million shares which is now at 12.07 million as some open interest shaded led by short covering activities.
Rising Put Call ratio with overall falling volatility suggests a bullish market stance for next coming sessions. Nifty started the week with a discount of 65 points and towards the weekend discount narrowed to 35 points. It is forming a higher base since the last 12 weeks and now it has to continue to hold above 10,500 zone to extend its move towards 10,800 then 11,200 zone while on the downside support is seen at 10,450 then 10,333 levels.
On monthly option front, maximum Put open interest is at 10,000 followed by 9,000 strike, while maximum Call open interest is at 11,500 followed by 11,000 strike. We have seen fresh Call writing in 10,800, then 11,200 strike while Put writing was seen at 10,400 then 10,200 strike.
From a writers/seller point of view, maximum Put open interest is at 10,000 levels which suggest medium-term positional support at 10,000 mark, while fresh Put writing at 10,400 zone hints at immediate key support at 10,400 levels. Similarly, fresh Call writing is being witnessed at 10,800 strike which hints at immediate hurdle at 10,800 mark. Combining all options data suggests an immediate trading range between 10,400-10,800 zone.
Bank Nifty future closed the week with the gains of 1.78 percent with a decent jump in open interest (by 18.86 percent on weekly basis) which suggests built up of long position as it managed to hold 20,800 zone and attempted to move beyond 22,000 zone.
Put Call ratio based on Open Interest of Bank Nifty remained in between 0.73 to 1.07 and closed the week with PCR open interest of 0.79 which suggests a grip of Call writers with multiple hurdles at higher zones. However, implied volatility of Banking index has fallen from 49 to 38 level which is ruling out any major dip even after its underperformance to the Nifty index.
Bank Nifty started the week at a discount of 130 points and towards the weekend discount narrowed to 8 points which is giving some comfort and sign of buy on decline strategy in this index. Bank Nifty traded inside the trading range of previous week which indicates tug of war between bulls and bears near the key hurdle of 22,300-22,500 levels. Now it needs to hold above 21,500 zone to witness an upmove towards recent swing high of 22,300 and 22,500 levels, while on the downside supports are seen at 21,250 then 21,000 levels.
In the cash segment, FIIs remained net sellers for the most part of the week but broke their selling streak on Friday. They were net sellers to the tune of Rs 5,333 crore in the week. DIIs, on the other hand, had an offsetting position and were net buyers worth Rs 5,041 crore this week. On the derivatives front, we have seen short covering in index futures and a mixture of long and short built up in stock futures which suggest for stock-specific action in the market.
For option strategy in Nifty, one can go with weekly (July 9) Bull Call Spread by buying 10,600 Call and selling 10,750 Call with the premium of 60 points while in Bank Nifty needs to look for Call writing of 23,000-23,500 strike with the view to multiple hurdles at 22,500 zone. For time decay benefit in a wider trading range, one can go with July monthly Short strangle in Nifty index by selling 9,200 Put and 10,400 Call by getting net premium inflow of around 45-48 points.
On weekly basis, stock wise long built up was mainly seen in Bharat Electronics, Balkrishna Industries, Max Financial Services, Indiabulls Housing Finance, BHEL, Marico and M&M Financial while major shorts were seen in Ashok Leyland, Divis Labs, REC and RBL Bank.
Stock wise we suggest long position in Bharti Airtel, Siemens, Eicher Motors, Max Financial Services, Hero Motocorp, Bajaj Auto, Godrej Consumer Products, TVS Motor while a weak structure is seen in RBL Bank, IndusInd Bank, Hindalco and McDowell.
The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
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