For option strategy in Nifty, one can go with weekly (16th July) Bull Call Spread by buying 10,800 Call and selling 10,950 Call with the premium of 55 points.
Chandan Taparia
Nifty future closed the week with the gains of 1.84 percent with addition in Open Interest (OI) by 11.31 percent on weekly basis which indicates built up of long position as it managed to hold 10,650 levels and headed towards 10,850 levels.
During the week, Put Call Ratio (PCR) based on Open Interest of Nifty remained in between 1.37 to 1.67 levels and closed the week with PCR of 1.47 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 24.58 to 21.19 which indicates a shift of higher base in the market.
Nifty started the previous week with future OI of 12.07 million shares which is now at 13.43 million as OI added led by fresh long built up. 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 35 points and towards the weekend discount narrowed to 1 point. It is forming a higher base from the last 13 weeks and now it has to continue to hold above 10,700 to extend its move towards 11,200, while on the downside support is seen at 10,650 and 10,550 levels.
On monthly option front, maximum Put open interest was at 10,000 followed by 9,000 strike, while maximum Call OI was at 11,500 followed by 11,000 strike. We have seen Call writing in 11,500, then 11,000 strike while Put writing was seen at 10,400 then 10,500 strike. In the market, we look at the option data for writers/seller point of view and maximum Put OI at 10,000 suggests medium-term positional support at 10,000 mark while fresh Put writing at 10,400 and 10,500 strikes hints at immediate key support at 10,400-10,500 levels. Option data suggests a wider trading range in between 10,500 to 11,200 levels while immediate range between 10,600 to 11,000.
Bank Nifty future closed the week with the gains of 2.71 percent and a decent jump in Open interest by 19.85 percent on weekly basis which suggests building up of long position as it managed to hold 22,000.
Put Call Ratio based on Open Interest of Bank Nifty remained in between 0.80 to 1.07 and closed the week with PCR OI of 0.80 which suggests a grip of Call writers with multiple hurdles at higher zones. However, IV of Banking index has fallen from 38-39 to 36.40 level which is ruling out any major dip.
Bank Nifty started the week at a discount of 8 points and towards the weekend it moved to a premium of 37 points which is giving some comfort and sign of buy on decline strategy in this index. It is near a crucial juncture as it is holding onto a rising support trend line by connecting all the recent swing lows. Now it has to cross and hold above 22,500 levels to witness an upmove towards 23,000 then 23,500 while on the downside key support exists at 22,000 then 21,500 levels.
In the cash segment, FIIs were buyers for the most part of the week but finally ended the week being net sellers to the tune of Rs 635 crore. On the other hand, DIIs were net sellers for the most part of the week and sold worth Rs 2,609 crore.
On the derivatives front, FIIs Index Long Short Ratio spiked to 66 percent this week which indicates FIIs interest coming back into the Indian market. Even though their investment is not much in equity but index participation will limit its downside with strength in heavyweight counters.
For option strategy in Nifty, one can go with weekly (July 16) Bull Call Spread by buying 10,800 Call and selling 10,950 Call with the premium of 55 points while in Bank Nifty one needs to look for Call writing of 23,000-23,500 strikes with the view to hurdle at 23,000 zone. For time decay benefit in a wider trading range, one can go with July monthly Short strangle in Nifty index by selling 9,600 Put and 10,400 call by getting a net premium inflow of around 40 points.
On weekly basis, stock wise long built up was mainly seen in L&T Finance Holdings, Century Textiles, Bajaj Finance, SBI, Equitas Holdings, SRF, Hindalco, Tata Consumer Products, Escorts, Reliance Industries, McDowell, TCS, Aurobindo Pharma and Jindal Steel. Stock wise we suggest a long position in Reliance Industries, Biocon, Mindtree, Infosys, NIIT Technologies, HUL, Escorts etc.
The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
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