By Gaurav Arora
Nifty Sep futures is currently trading at a premium of 25 points whereas Oct series is currently trading at a premium of 160 points.
The index after making record highs around 25,350 levels is now witnessing minor profit taking. We reiterate our view that things might not be that smooth in the Sep series.
There was noticeable addition in OI in benchmark futures in the first 2 sessions of the series, after that some reduction was seen and it’s safer to say that this is Long Unwinding. To put it in numbers, the OI stands at about 6.05 lakh contracts compared to around 5.7 lakh at the start of the series.
Nifty is trading above its medium-term EMAs by a decent margin, whereas struggling around the shortest ones. Going ahead, 24700 would be the immediate support and a breach of it would bring some downside.
Bank Nifty Performance
Underperformance from Banking continues. The ratio (Bank Nifty/Nifty) which was at 2.2 some time back is now hovering around 2.03-2.07 for some time.
Going ahead, expect some breather in this 50,300-400 would be the strong support for the Banking Index whereas 51,800-52,000 would be the Resistance. Having said that, we anticipate the index to show some positivity on the back of decent cash-based buying seen in private banking majors.
FIIs Activity
The Foreign Institutional Investors (FII) Net Index Long exposure was at around 70% at the start of the new series, though overheated but suggests some more steam left in this rally.
Support and Resistance Levels
The critical support level for Nifty is at around 24,650-24,700. A decisive close below this range could indicate further profit taking.
The Volatility Index (VIX) for Nifty is currently around 14, with an expected range of 12-18 moving forward.
Data points indicate a relatively volatile environment for the near term. This volatility may increase this and next month keeping track of US election and other Geopolitical scenarios.
The Volume Weighted Average Price (VWAP) for Nifty is around 24,700, marking this range as a key level to watch. Index has managed to hold these levels in recent profit taking, so it’s prudent to have a positive view and participants may consider buying the dips.
For Bank Nifty, the VWAP is around 50,300-400, only below which one may expect some downside. Indications are in the favor of Bank Nifty witnessing some breather from its underperformance.
Sector Outlook
Sector-wise: All sectors have been contributing on a rotational basis.
Going ahead, we believe Pharma, Chemicals & FMCG would be strong performers.
Strategy: Short Straddle Strategy
A recommended strategy for Nifty is Short Straddle Strategy. This involves selling Nifty 19th Sep 24,900 Put Option (PE) at 195, selling Nifty 19th Sep 24,900 Call Option (CE) at 205.
The combined spread of 400 has a target of 200 with a Stop of 460.
Conclusion
The Sept series for Nifty futures presents a profit-taking outlook, wherein sector & stock-specific opportunities may continue to arise.
Options Data also suggest the same. The recommended Short Straddle strategy offers a tactical approach to trading in such a scenario. Pharma, Chemicals & FMCG sectors emerge as strong contenders within Nifty, offering promising trading opportunities.
(About The Author: Gaurav Arora – Derivatives Analyst, Religare Broking)
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