Mumbai: The Nifty's movement last week reflected the jitters of traders at higher levels and the lack of follow-up long build-ups. The cost of carry had started declining last week in spite of the rise in Nifty. The open interest, too, reflected lack of a directional build-up as the positions used to get unwound the very next day following build-ups.
The trigger for the fall came from Reliance, which got hammered due to the negative corporate development (HC ruling in the Reliance Industries-Reliance Natural Resources case). The ADAG group stocks, too, were showing lack of strength in spite of the positive development. This indicated market nervousness.
Profit booking in technology, banking and power sector stocks led to a bigger fall when infrastructure and real estate scrips also joined the sell-off. The cost of carry across the board witnessed declines, indicating short pressure was building up.
Implied volatility on the options front had started inching up. The bias had turned somewhat overbought as reflected by call implied volatilities getting higher than corresponding puts after a spell of three months.
The range for the expiry was likely to be around 4300 and 4700 for the writers considering the premiums they had received in writing of 4400 put and 4600 call. The trading interest is still in the same series, indicating a range breakout is unlikely.
The global cues remained uncertain as the US and other western markets remained choppy. The quadruple witching on Friday in the US was the other factor leading to choppiness. Declining volatility there may be followed by a big move in the next couple of weeks after a sideways movement.
As a lot of hedging costs are still there on S&P and options, I believe the underlying trend will remain firm as a lot of negativity still persists and the markets tend to go in the opposite direction.
Short-covering is likely in banking, real estate and construction post sell-off as the underlying positions which are being rolled for the last three expiries are still persisting and will help stabilise prices. Power may witness fresh build-up considering the government's plans to list NHPC.
Reliance Industries, Bharti Airtel, ONGC, SBI, ICICI and Bhel are likely to witness a sideways trend for the early part of expiry week and may inch up as we approach expiry. RCom, NTPC, Infosys may witness short covering as a lot of shorts have built up.
Momentum F&O stocks like Suzlon, JP Associates, HCC may be volatile and firm up as fresh longs are built up at lower levels.
Nifty is likely to trade in the 4250-4350 range in the earlier part of the week and, if fresh longs gets added with normal rolls, the expiry can be in the range of 4400-4450.
The writer is head, derivatives and strategy,PINC Research


