In a truncated last week, the market displayed remarkable volatility, especially on Wednesday. Despite high volatility, Nifty managed to close 3.28% up.
Trade with positive bias in large cap IT counters
Fund manager, derivatives,
Angel Broking
In a truncated last week, the market displayed remarkable volatility, especially on Wednesday. Despite high volatility, Nifty managed to close 3.28% up at 5185.85 from previous week’s 5021.35.
This has resulted into implied volatility zooming from last week’s 26.10% to high of 34.50%. We have witnessed IVs as low as 23% in last week.
Last week’s rally in indices was not led by any particular sector but some selected stocks across the sectors. Power stocks continued their winning streak with significant rise in prices week-over-week.
However some profit booking was visible on Friday after the phenomenal listing of Power Grid. Construction and real estate stocks like HCC, HDIL, DLF were among prominent gainers in week gone by.
Last week was also reasonably good for telecom stocks like RCOM, Idea and especially Bharti Airtel as it was in a range from quite some time.
Banking counters witnessed significant correction in them, especially midcap stocks. This can be attributed to profit booking after steep run-up in last couple of weeks.
Also some CRR-related rumours in the market are making participants jittery at higher levels.
As implied volatility has surged, the premiums in out-of-money options have surged and the activity in them has
increased considerably.
We believe this activity is mainly on sell side indicating formation of meaningful support and resistance in this one-way (North) market.
Activity in 5,000 put option is high and in calls, significant addition has been witnessed in 5,200 and 5,300 strike prices.
This week, we can expect the market to find it difficult to move above 5,300 and we may witness pressure on account of profit booking in the range of 5,200-5,300.
5,000 put and 5,300 call nearly have Rs 100/- as premium. We suggest to sell both the options and form short strangle as our view is range-bound in market.
Break even points in this strategy will be 4,800 on lower and 5,500 on higher side; both look unlikely to be breached.
On global front, we have seen good job data news from the US and experts in currency market believe this may boost the dollar.
Evidence of this is clearly visible in other parts of the world, were last week the dollar appreciated against major trading currencies.
But this was not the case with rupee. We believe this disparity may not work in the week ahead and may see dollar appreciating against our currency.
With Infosys numbers round the corner, one should trade with positive bias in large cap IT counters. One more reason to support the argument is that last quarter the hedges of IT companies would have given them significant forex gains as dollar had depreciated.
We are witnessing an increasing interest of participants in auto stocks, especially commercial vehicle segment and pharma stocks, which have been laggards. These two spaces appear to be safer haven in the market in volatile times.
siddarthbhamre@yahoo.co.in
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