 "After 8,300 breakout, 8,500 plus new target")
Hopes of major liquidity infusion from the central banks has pushed global equity markets up in the past few sessions. The Nifty and Sensex have participated enthusiastically in this rally and both have hit 2016 highs. Raghuram Rajan's last policy review in early August will be eagerly awaited. The Reserve Bank of India meet will follow on the heels of policy meets from the European Central Bank, the US Fed and the Bank of Japan, all in late July.
The Nifty has made a breakout above 8,300 to register a sequence of higher highs. This is clearly strongly bullish and the breakout has a target in the 8,500-plus range. However, there is very strong resistance at every 50-point interval and newsflow will continue to be the driver. On the domestic front, a good monsoon and hopes of GST passage could be bullish drivers. Technically speaking, the trend is bullish across all timeframes.
So, newsflow will continue to be the driver. However, there are many other "known - unknowns" to be factored in, during the next six months, including the Brexit fallout, electing a new US president, etc. Plus of course, there are the "unknown-unknowns" like mass scale terrorist attacks on targets in the First World, possible commodity supply disruptions, geopolitical face-offs, etc.
FIIs continue to sell rupee debt after the Brexit. But, they bought equity in fairly large quantities on the settlement day. The domestic institutions have been small net sellers. The breadth has been good since retail is strongly bullish. The monsoon has, so far, offered a boost to sentiment.
But, there isn't enough liquidity to do this safely at the moment. A long strangle of long July 28, 17,700p (186), long July 28 18,600c (154) costs 340- odd. This is roughly zero-delta versus the Nifty Bank future (18,150), with breakevens at 18,940, 17,360. In the July Nifty call chain, there's good open interest (OI) till 9,000 but the peak OI is at 8,500c. In the July Nifty put chain, there's good OI till 7,000p, with a big peak at 7,500p and another big peak at 8,000p. Put-call ratios (PCRs) are bullish at 1.13 for the 3-month PCR and 1.14 for the July PCR.
A bullspread with long July 8,400c (113), short 8,500c (67) costs 46 and pays a maximum 54. It is just 30 points from money. A wider long 8,500c (67), short 8,600c ( 36) costs 31 and looks more tempting though its 130 points from money. A bearspread with long 8,300p (90), short 8,200p (62) costs 28 and pays a maximum 72. This is about 70 points from money. A long 8,200p, short 8,100p (42) costs 20 and pays a maximum 80.
As of now, the expectations seem to be quite strongly bullish. The premiums seem under-priced for both puts and calls. The implied volatility is low, given the length to time to settlement (July 28). There is a promise of high volatility in the last week or so as the central bank policy meets start. There could be a steeper uptrend if central banks deliver on the liquidity. There may also be a sharp trend reversal if traders are disappointed.
The Nifty has made a breakout above 8,300 to register a sequence of higher highs. This is clearly strongly bullish and the breakout has a target in the 8,500-plus range. However, there is very strong resistance at every 50-point interval and newsflow will continue to be the driver. On the domestic front, a good monsoon and hopes of GST passage could be bullish drivers. Technically speaking, the trend is bullish across all timeframes.
So, newsflow will continue to be the driver. However, there are many other "known - unknowns" to be factored in, during the next six months, including the Brexit fallout, electing a new US president, etc. Plus of course, there are the "unknown-unknowns" like mass scale terrorist attacks on targets in the First World, possible commodity supply disruptions, geopolitical face-offs, etc.
FIIs continue to sell rupee debt after the Brexit. But, they bought equity in fairly large quantities on the settlement day. The domestic institutions have been small net sellers. The breadth has been good since retail is strongly bullish. The monsoon has, so far, offered a boost to sentiment.
But, there isn't enough liquidity to do this safely at the moment. A long strangle of long July 28, 17,700p (186), long July 28 18,600c (154) costs 340- odd. This is roughly zero-delta versus the Nifty Bank future (18,150), with breakevens at 18,940, 17,360. In the July Nifty call chain, there's good open interest (OI) till 9,000 but the peak OI is at 8,500c. In the July Nifty put chain, there's good OI till 7,000p, with a big peak at 7,500p and another big peak at 8,000p. Put-call ratios (PCRs) are bullish at 1.13 for the 3-month PCR and 1.14 for the July PCR.
A bullspread with long July 8,400c (113), short 8,500c (67) costs 46 and pays a maximum 54. It is just 30 points from money. A wider long 8,500c (67), short 8,600c ( 36) costs 31 and looks more tempting though its 130 points from money. A bearspread with long 8,300p (90), short 8,200p (62) costs 28 and pays a maximum 72. This is about 70 points from money. A long 8,200p, short 8,100p (42) costs 20 and pays a maximum 80.
As of now, the expectations seem to be quite strongly bullish. The premiums seem under-priced for both puts and calls. The implied volatility is low, given the length to time to settlement (July 28). There is a promise of high volatility in the last week or so as the central bank policy meets start. There could be a steeper uptrend if central banks deliver on the liquidity. There may also be a sharp trend reversal if traders are disappointed.