By Gaurav Arora

Nifty August Futures is trading with a premium of around 30 points whereas September Futures is currently at a premium of 155 points.

After making record highs, the index witnessed some profit taking though intensity is high amid weak global cues. However, there was not any change in OI suggesting participants are not interested in creating fresh short positions. To put it in numbers, the OI stands at about 6.33 lakh contracts compared to around 6.32 lakh at the start of the series.

The OI stands at 5.75 Lakh contracts for the August series.

Bank Nifty Performance

After a period of underperformance, Bank Nifty is beginning to show some signs of stabilization. The Ratio (Bank Nifty/Nifty) which was at 2.05 at the start of the series is now at 2.1. Going forward, expect this to continue. The sector had lagged but this may not continue now, it might trade in tandem with the benchmark. This shift is underpinned by a favourable risk-reward ratio.

FII Activity

The Foreign Institutional Investors (FII) Net Index Long exposure has risen to approximately 60%, up from 57% at the beginning of the new series. Apart from that, they were net buyers in the cash segment in July month though their activity remains inconsistent in stock futures.

Support and Resistance Levels

The critical support level for Nifty is at around 23,800-900. A decisive close below this range could indicate a further downside. The Volatility Index (VIX) for Nifty is currently around 17, with an expected range of 14-24 moving forward. Data points indicate a relatively volatile environment for the near term. This volatility may remain to keep track of geopolitical tensions and Yen Carry Trade, so Long Straddle/ Strangle strategies may reward for some time.

The Volume Weighted Average Price (VWAP) for Nifty is around 24,650-700, marking this range as a key level to watch. For Bank Nifty, the VWAP is around 50,900-51,000.

Other indications are also in favour of Bank Nifty ceasing its underperformance and could start performing well.

Trading Strategy and Sector Outlook

A bounce towards the 50,900-51,000 range for the Banking Index should be viewed as a shorting opportunity, with a stop loss set at 51,500. Fresh Longs should only be looked above that.

Sector-wise: All sectors faced heat in this turmoil but METAL, AUTO & REALTY facing the maximum beating.

Going ahead, we believe, IT, FMCG & Pharma to be strong performers within Nifty.

Strategy: Call Ratio Spread

A recommended strategy for Nifty is a Call Ratio Spread. This involves buying Nifty 14th Aug 24,400 Call Option (CE) at 198, selling the Nifty 14th August 24,600 Call Option (CE) at 115 and selling the Nifty 14th August 24,800 Call Option (CE) at 65. The combined spread of 18 has a target of 80.

Conclusion

The August series for Nifty futures presents a profit-taking or slightly bearish outlook, though not supported by Open Interest which indicates support would continue to emerge at lower levels. Options Data also suggest the same. The recommended Call Ratio Spread strategy offers a tactical approach to trading in a moderately volatile environment. IT, FMCG and Pharma sectors emerge as strong contenders within Nifty, offering promising trading opportunities.

(Disclaimer: Gaurav Arora is a Derivatives Analyst at Religare Broking. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)