Indian frontline indices ended with gains on Wednesday, continuing their gaining streak for the fourth time in a row as the losses in bank, IT and auto stocks were offset by gains in FMCG and pharma stocks. BSE Sensex ended at 65,880, up 100 points or 0.15% while the broader Nifty50 settled at 19,611, higher by 36 points or 0.18%.
Nifty has broken out of the 19,250-19,600 consolidation phase on the daily chart and a strong follow-upward move is expected with short covering likely at a strike price of 19,600 to lead the next leg of the rally in Nifty, Ashwin Ramani, Derivatives & Technical Analyst, SAMCO Securities said. The futures Open Interest (OI) indicated a buildup of fresh long positions for the third consecutive day and the Foreign Portfolio Investors’ (FPIs) Long-Short Ratio improved from 51.77% on 4 September to 52.36% on 5 September as the FPIs continued to build long positions in Index Futures, Ramani added.
Analyst Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services expects the market to likely trade in a broader range with positive bias given strong domestic factors. However, Khemka warns of niggling issues including “persistent” selling by foreign institutional investments (FII), poor monsoon, slowing global economy and the likelihood of interest rate hikes calling them a worry.
On Wednesday, FIIs sold equities worth Rs 3,245.86 crore.
Options Strategy: Nifty, Bank Nifty
Analyst Rajesh Palviya, Senior Vice President, Technical and Derivatives Research at Axis Securities recommends traders to initiate a moderately bullish strategy with reduced premium outflow and a lower breakeven point called ‘Bull Call Spread’ of September 14 weekly expiry. The traders can buy one lot of 19,600 call strike at Rs 107 and simultaneously sell one lot of Rs 19,800 call strike at Rs 28, so that net outflow or maximum loss will be restricted to up to Rs 3,950.
If Nifty closes above 19,679 on expiry, the strategy will start making a profit and as the risk is limited so will be the profit of up to Rs 6,050 only, he explained. “The maximum gains will be restricted because the gains of a long 19,600 strike call will be offset by the sold 19,800 strike call if Nifty closes above 19,800 on expiry,” Palviya said.
Investors can also take positions on Bank Nifty options whose weekly expiry has been shifted to Wednesday from September 6 onwards. Palviya suggested a moderately bullish strategy for the September 13 weekly expiry called Call Ladder, which involves buying of one lot of Bank Nifty 44,500 Call at Rs 268 and selling of one lot of 45,000 Call at 82 and one lot of 45,500 Call at Rs 22.
“The cost of the strategy involves outflow of Rs 2,460 per lot which is the maximum loss if Bank Nifty trades and closes below 44,600 levels on expiry. However, the maximum profit is of Rs 5,040 per lot if the level above 45,000 is attained. The strategy will start making loss if Bank Nifty crosses 45,800, hence it’s advisable to exit the strategy in total to avoid unlimited losses above 45,800. Break Even points of the strategy are 44,664 on downside & 45,836 on the upside,” the Axis Securities analyst said.
Ramani of Samco pointed out indecision in Bank Nifty which has witnessed the formation of a long-legged doji candle on the daily chart. He said that Bank Nifty failed to go past the 44,500 levels on the back of strong call writing, adding that the Put-Call Ratio (PCR) fell from 0.97 to 0.93, suggesting that the bears were on top of bulls.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)