Monday, 6 August 2018
Deploy call ratio spread in Bank Nifty as private sector banks are witnessing short covering
Call ratio spread is a moderately bullish strategy that is executed by buying a lower strike call and selling two higher strike calls near the resistance area.
The August series kick-started on a positive note as the bulls took control of Dalal Street. The Nifty closed at a record high of 11,360 with a gain of 0.7 percent on a weekly basis.
Pharmaceuticals, energy, state-run banks saw a stellar performance with a gain of 2.5-4.5 percent in the week gone by. Both Nifty and Bank Nifty are trading strong as the long unwinding cycle in futures remains intact.
The week started on a positive note as the Nifty inched higher to 11,390 levels. However, trade war woes and global cues had a gloomy effect that led to an intra-week downtick to 11,235 levels.
However, bargain buying at lower levels pulled the index higher. Strong open interest (OI) built-up of around 22 percent, with a positive price action, is seen in the Nifty since the beginning of August series, supporting the underlying momentum.
Option data for Nifty saw tremendous breakthrough last week as put writers were aggressive at 11,300 and 11,200 strikes, with open interest addition of around 20 lakh shares.
Call writing was spread across 11,400, 11,600 and 11,700 strikes. Overall, the index is witnessing a higher put accumulation compared to call accumulation.
The put-call ratio for Nifty stands at 1.72. For the August expiry, 11,300 would act as important support while resistance remains light at 11,500 levels.
India VIX (volatility index), a barometer of risk, trades in the 10-13 percent band depicting traders comfort in the trend and pessimism put to rest by writers.
Volatility skew (an advance option tool that’s plotted by using implied volatilities of out-of-the-money call and OTM put an average of call and put for at-the-money options) slope too remains steep, signalling trending phase, keeping the room open for further upside.
Any adverse move in the India VIX above 15 percent can prove detrimental for the bullish trend and thus traders need to be watchful of that level.
Participant data shows foreign institutional investors were marginal sellers of Rs 500 crore in index futures, with net open interest addition of 3,000 contracts on the short side.
However, they have gone long synthetically in index options. FII synthetic long (long call+short put) to synthetic short (long put + short call) ratio moved from 0.93 to 1.11 last week. Retail investors have been buyers in index futures while proprietary traders have been sellers.
The Bank Nifty saw frequent gyration during the week gone by led by key private bank results and outcome of the Monetary Policy Committee meet. Option data depicts strong support at 27,500 with highest put accumulation of 6.6 lakh shares. On the higher end, resistance remains at 28,000 (highest call accumulation).
Private sector banks are witnessing positive short covering in ATM call and fresh writing in ATM puts, lending strength to the Bank Nifty.
Considering the positive bias and to take advantage of faster theta decay in weekly option, an aggressive strategy call ratio spread is recommended in the Bank Nifty. Call ratio spread is a moderately bullish strategy that is executed by buying a lower strike call and selling two higher strike calls near the resistance area.
This strategy is idle to be played in expiry week as faster theta decay is beneficial for the strategy. Considering the set-up of Bank Nifty, based on derivative data points, 28,000 seems a vital resistance. We recommend buying one lot of 27,700 call and selling two lots of 28,000 calls.
As the strategy is exposed to unlimited risk above 28,200 levels, proper risk management is required making it best fit for an aggressive trader.
MORE WILL UPDATE SOON!!
Monday, 30 July 2018
Deploy Bull Call Ladder to take advantage of upside momentum in Nifty
Considering secular move in Nifty since the last couple of sessions along with important resistance placed at 11,500, it would be prudent to go with conservative bullish strategy Bull Call Ladder for the next couple of sessions.
July series saw a stellar rally in both Nifty and Bank Nifty. The Nifty index was up by 5.59 percent while the Bank Nifty was up by 4.36 percent on expiry to expiry basis (E-o-E).
Rollover too was on a strong note with a Nifty roll of 72.89 percent compared to 63.6 percent seen in the last expiry while Bank Nifty roll was at 77.49 percent compared to 71.4 percent.
With the uncertainty revolving around the introduction of the first phase of physical settlement, the stock specific movement was under the limelight. Reluctance among participants to carry forward positions in these stocks to the next series was evident as relatively lower open interest (OI) got carried forward.
Series saw Energy Index as best performer with a gain of over 11 percent mainly led by Reliance and ONGC. PSU Bank, Private bank, Nifty IT and Nifty infrastructure were other sectors that saw a significant rally in July series.
Expiry over expiry long built-up was witnessed in Adani Group stocks along with Tata Elxsi and ICICI Bank that saw positive price action along with incremental open interest built-up.
Rollover too was over 85 percent indicating long carried forward to the next series. On the other hand, the short build-up was seen in stocks like Apollo Hospitals, Hero MotoCorp and Kajaria Ceramics in the July series along with good rollover to the next series.
Option data for Nifty saw tremendous breakthrough as Call writers at 11,000 saw a sharp covering that propelled the upward momentum. Put writers have shifted higher to 11,000 strikes.
The August series commence on a positive note. Immediate resistance is placed directly at 11,500 with OI of ~30 lakh shares while 11,000 Put stands at ~40 lakh. The Nifty August PCR OI trades at 1.39 and is inching higher which supports positive momentum.
Volatility Skew (an advance derivative tool that’s plotted by using implied volatilities of OTM Call, OTM Put and an average of Call and Put for ATM options) at beginning of July series did give early signals of trending bullish expiry with a steeper slope.
As we move in August series, slope continues to be steep, keeping the room open for further upside.
Participant data shows Foreign Institutional Investors in buying mode. Their Long/Short ratio in Index future has moved to 1.45 compared to 0.67 last month.
Client on other hand remained balanced with the ratio at 1.14. Proprietary traders are taking contra bet with the long/short ratio at 0.27. In Index Option too FII are steadily increasing their longs via Synthetic futures (Call Long + Put short).
Considering secular move in Nifty since the last couple of sessions along with important resistance placed at 11,500, it would be prudent to go with conservative bullish strategy Bull Call Ladder for the next couple of sessions.
Bull Call Ladder is a moderately Bullish strategy that is executed by buying a Call and selling two higher strike Calls at different strikes. We have selected relatively farther strike to take a cushion for positive price action.
Maximum Profit is made between two strikes sold if the strategy is held till expiry. This is protected option writing strategy that aims to make money from sideways to a bullish market. The strategy has a downward protection that ensures a limited loss in case prices takes a U-turn.
MORE WILL UPDATE SOON!!
Tuesday, 24 July 2018
Technical View: Nifty forms bullish candle; next hurdle at 11,100-11,172
Meaningful Put writing was seen at 11,000 followed by 11,100 whereas Call unwinding was seen at all the immediate strikes.
The Nifty50 after opening above 11,000-mark rallied sharply to hit a fresh six-month high and closed around the same level, forming bullish candle on the daily charts on Monday.
The winning of no-confidence motion by Narendra Modi government in the Lok Sabha and cut in GST rates for several products boosted investors' sentiment.
The 30-share BSE Sensex ended at record closing high of 36,718.60, up 222 points while all sectoral indices also finished in the green barring IT.
The broader markets outperformed frontliners with the Nifty Midcap index rising 1.1 percent but despite positive sentiment, more than 300 stocks hit 52-week lows today.
The Nifty50 opened at 11,019.85 and gained further strength in later part of the session to hit six-month high of 11,093.40. The index closed 74.60 points higher at 11,084.80.
The index surpassed immediate hurdle of 11,080 and given a highest daily close since January 29. Now the index is less than 100 points away from record high and to touch that highest ever point, it has to hold decisively the next hurdle of 11,100, experts said.
Finally it is looking like a breakout on Nifty50 as bulls signed off the session in style with a bullish candle and registered a close above its consolidation range between 11,080–10,925 levels. This range breakout itself is throwing up a fresh target of 11,241.
However, the initial target can be projected as test of life time highs placed around 11,171 where some selling pressure can be expected which should eventually get absorbed and then pave the way for bigger targets placed around 11,241, he said. "Hence, traders are advised to go for fresh long positions with a stop below 11,000 on closing basis and look for bigger targets.
Going ahead, 11,100-11,172 will be the key area to watch out for. "If the bulls manage to surpass that hurdle & sustain in the higher territory then the index can aim for significantly higher levels. The daily & weekly Bollinger Bands are in expansion mode thus creating room for the index on the higher side."\
On the flip side, the swing low of 10,925 shall pose as a crucial support for the short term, he feels.
India VIX fell by 4.32 percent at 12.95 levels. Decline in VIX has given the comfort to bulls with fresh consolidation breakout.
On the option front, maximum Put open interest (OI) was seen at 11,000 followed by 10,900 strike while maximum Call OI was at 11,100 followed by 11,200 strike.
Meaningful Put writing was seen at 11,000 followed by 11,100 whereas Call unwinding was seen at all the immediate strikes.
Option band signifies an trading range in between 10,950 to 11,171 zones, experts said.
The index formed a Bullish candle and also given a consolidation breakout from its trading range of last nine sessions. Now it has to hold above 11,000-11,020 zones to extend its gains towards lifetime time high of 11,171 level while on the downside supports are seen at 10,950-10,929 zones.
Bank Nifty recovered well from its intraday low near 26,670 and finally settled above 27,000 zones, rising 0.5 percent to 27,008.15.
Taparia said it formed a Bullish candle with long lower shadow on daily scale which suggests that decline is bought into this index.
It has to continue to hold above 27,000 zones to witness an up move towards 27,165 then 27,400 while on the downside support are seen at 26,750 then 26,650 levels.
MORE WILL UPDATE SOON!!
Tuesday, 3 July 2018
Technical View: Nifty forms 'Dark Cloud Cover' pattern; avoid short terms bets
Formation of a Dark Cloud Cover after a bullish candle does not augur well for the bulls and traders should avoid short term bets for the time being.
The Nifty50 which started with a gap-up failed to hold on to gains and closed the session lower on Monday, forming a bearish candle on the daily charts which also resembles a 'Dark Cloud Cover' kind of pattern on the daily charts.
A Dark Cloud Cover pattern is a bearish pattern which consists of two candles. It is formed when a large red candle, the one we saw in Monday's trading session partially covers the preceding bullish candle which was formed on Friday.
Also, the bearish candle has to close below the midpoint of the previous bullish candle.
The NSE Nifty which opened at 10,732.35 rose to an intraday high of 10,736.15 but then bears took control at Dalal Street and pushed the index towards 10,600 levels. It hit an intraday low of 10,604.65 but managed to recoup half of losses in the last couple of hours of trade before closing the day at 10,657.30, down 57 points.
The index closed below 13-EMA, 5-EMA, and 50-EMA but still maintained the crucial support which is 100-EMA at 10,575.
Formation of a Dark Cloud Cover after a bullish candle does not augur well for the bulls and traders should avoid short term bets for the time being, experts suggest.
Nifty50 continued its see-saw kind of movement as it witnessed a choppy session which finally resulted in a Dark Cloud Cover kind of technical formation on candle stick charts.
Strong upmove witnessed in Friday’s session accompanied with smart recovery after erasing all the gains of Friday on intraday basis is still suggesting that this market lacked a direction perhaps owing to global trade related uncertainities.
It looks prudent on the part of traders to avoid short term bets for time being and to focus on larger trends breach of which may chalk out the future course of action for the indices. "On the downsides 10,550 is still looking like a sacrosanct support breach of which shall take the indices below 10,400 levels and may also result in test of 200-Day Moving Averages where as a decisive close above 10,840 shall usher in a sustainable uptrend.
Nifty is not giving away any cue while continue fall on broader front has pushed the bulls completely on the back foot. At the same time, it has result in oversold positions too so possibility of intermediate rebound can't be ruled out. Traders should restrict their trades in such scenario.
India VIX moved up by 3.94 percent at 13.37 levels. On the option front, maximum Put open interest (OI) was seen at 10,600 followed by 10,500 strike while maximum Call OI was seen at 11,000 followed by 10,800 strike.
Put writing was seen at 10,500 followed by 10,600 while Call writing was seen at 11,000 and then 10,900. Option band signifies a trading range between 10,600 to 10,750 zones.
Nifty index failed to hold above 10,700 levels and remained under pressure for the most part of the trading session. It formed a Bearish Candle on daily scale which means that selling is witnessed at higher levels.
Now till it holds below 10,660 zones, it could slip towards 10,600 then 10,550 zones, while on the upside hurdles are seen at 10,700 then 10,770 levels.
MORE WILL UPDATE SOON!!
Sunday, 17 June 2018
Deploy bear put spread on Bank Nifty in June series
Considering slowdown in momentum, Bank Nifty may see further pressure emerging in the second half of expiry.
The market last week gyrated in a tight range of 10,750-10,900, with alternate bouts of buying and selling. Sector rotation was at the forefront.
Positive sectoral trends continued in sectors like pharmaceuticals and IT while metals saw selling pressure. Banking remained lacklustre with the PSU Bank Index seeing an upsurge while private banks traded mixed.
The Nifty was up 0.46 percent while the Bank Nifty was down 0.13 percent on a week-on-week basis. On the weekly basis, we saw Put writers forming a base at 10,700 compared to last week’s strike of 10,500. Higher end call writing stood firm at 11,000 strikes.
India VIX, the Volatility Index, traded in a range of 11-14 percent, indicating consolidation. A shift in volatility is a prerequisite for any trend to evolve and is not evident yet.
Participant data analysis for last week showed foreign institutional investors (FIIs) continuing with their short bias in index futures, with long to short ratio moving from 0.70 to 0.68. In index options, FIIs added 10,500 contracts on the synthetic long side, depicting indecisiveness among them.
The Bank Nifty saw relative underperformance compared to the Nifty in the last two weeks. A shift in hand was seen from private to state-run banks.
However, the rally in state-run banks fizzled out towards the fag end of the week. Option data for Bank Nifty suggest higher calls compare to puts, indicating call writers have an edge.
Highest put writing is visible at 26,000 strikes while call writers are aggressive at 26,500 strikes. Considering slowdown in the momentum, Bank Nifty may see further pressure emerging in the second half of expiry.
A low risk, Bear put spread in the monthly expiry is recommended for the Bank Nifty. A Bear put spread is a bearish strategy that offers a decent reward to risk at low cost. It is executed by buying one out-of-money 26,300 put and selling one lot of lower OTM 26,000 PE.
Maximum risk is well defined in the strategy while maximum reward is limited to the difference in strikes less net outflow.
MORE WILL UPDATE SOON!!
Tuesday, 5 June 2018
Technical View: Nifty forms ‘Hammer’ kind of candlestick pattern; 10,550 crucial for bulls
A Hammer which is a bullish reversal pattern is formed after a decline while a Hanging Man is a bearish reversal pattern. A Hammer consist of no upper shadow, a small body, and long lower shadow.
The Nifty 50 which started on a mild negative bias failed to build momentum and bears were successful in pushing the index below its crucial support level placed at 10,600. The index made a ‘Hammer’ like pattern on the daily candlestick charts on Tuesday.
A Hammer which is a bullish reversal pattern is formed after a decline while a Hanging Man is a bearish reversal pattern. A Hammer consist of no upper shadow, a small body, and long lower shadow.
The long lower shadow of the Hammer signifies that it tested its support where demand was located and then bounced back. The index bounced back near its 50-EMA placed around 10,549.
Investors are advised to remain cautious and a decisive breach of 10,550 in the week could well put bears in the driving seat, suggest experts. On the other hand, a close above 10,620 could put bulls in a fighting position.
The Nifty 50 which opened at 10,630 rose marginally to hit an intraday high of 10,633.15. Bears took control in the second half and pushed the index below 10,600 to hit an intraday low of 10,550. The index closed 35 points lower at 10,593.15.
The Nifty 50 registered a ‘Hammer’ kind of formation as it recoiled after testing its 50 Day EMA. In this process, it also appears to have achieved its initial targets after slipping below 10,558 levels.
Now, interesting observation is that if the corrective structure is in progress from the highs of 10,717 registered on the 29th of May, the pullback move from the lows of 10,417 registered on 23rd of May has not ended at a recent high of 10,770 levels then in Elliot Wave parlance this correction should end below 10,558 in the form of an Expanded Flat there by paving the way for continuation of pull back rally beyond 10,770 levels.
Contrary to this optimistic scenario if the downswing continues and decisively breaches 10,550 levels then it should head all the way down towards 10,400 levels. Till more clarity emerges about the direction traders are advised to take a neutral stance on the indices.
India VIX fell down by 4.03 percent at 13.32 levels. On the options front, maximum Put OI is placed at 10,200 followed by 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,700 strikes.
Fresh Put writing was seen at 10,400 and 10,500 strikes while Call writing is seen at 10800 and 10600 strikes. “Options data suggests a broader trading range in between 10550 to 10700 zones for next coming sessions. The buying interest was seen at lower levels in last hour of the trading session and it formed a long lower shadow candle on the daily scale as it managed to respect crucial support of 10550 levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
Now, Nifty has to hold above 10,620 zones to witness an up move towards 10,680 then 10,707 while a hold below 10550 could start a fresh leg of decline towards next support of 10,500-10,480 zones.
MORE WILL UPDATE SOON!!
Monday, 4 June 2018
Nifty unlikely to see deep cuts in June series; deploy bull call spread this week
The Nifty witnessed severe volatility in May series as it alternated between bouts of buying and selling. The index gained a percent compared to the April series.
The mid and smallcap indices continued to witness a massive bloodbath.
The Bank Nifty outperformed the broader market, led by a stellar rally in large private sector banks like HDFC Bank, IndusInd Bank and Kotak Mahindra Bank. The index gained 7.7 percent on an expiry-to-expiry (EoE) basis.
Rollover data shows relatively low rolls in Nifty and Bank Nifty at 62.8 percent and 74.8 percent, as compared to 72 percent and 82 percent, respectively, last expiry.
Uncertainty around additional margin requirements in the derivative segment saw scepticism among market participant to carry forward their trade to the June series. Geopolitical uncertainty, categorisation and rationalisation of mutual fund scheme saw immense volatility in sectors like infrastructure, pharmaceuticals and capital goods.
Frequent gyration in the market provided a lot of opportunities to option traders, especially writers, to participate in both sides. Heavy writing ‘in the money put’ in 10,500 strike provided strong support to the market.
June options data shows highest call congestion at 11,000 strike, while put writing remains strong in the 10,400-10,600 range.
With relatively low resistance on the upside and strong support, it leaves the door open for the positive momentum to accelerate. Volatility skew too is turning flattish, indicating that options traders too are not looking for deeper cuts in the June series.
Given that we expect the positive bias to sustain in the near term, a bull call spread strategy is recommended. This bullish strategy is executed by buying a call and selling a higher strike call to fund it. It is a net debit strategy with a limited risk to limited reward.
Moreover, it helps to reduce cost. Maximum profit on this strategy is limited while a loss is capped on the downside.
MORE WILL UPDATE SOON!!
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