 "Indicators pointing to bearish trend")
The market mood remains cautious although there were the makings of a relief rally on the estimation that Hillary Clinton leads in early voting for the US Presidential elections. Nevertheless there will be plenty of fear across global financial markets until the results are actually finalised.
In India, the shockwaves continue from the Tata Group. Lacklustre second quarter results also weigh down sentiment. Yields are high in all global bond markets and there's a strong consensus that the US Federal Reserve will raise rates in December.
The Nifty broke down to 8,400 on last Friday and it has pulled back till the 8,500 level on the estimates that Mrs Clinton is leading in early voting and the news that the FBI has not found any incriminating e-mails. News flow will continue to be the determinant of trends.
A move till either 8,100, or till 8,800 could arise, with a breakout or a breakdown, depending on election results. The market would clearly favour a Clinton win but it might remain bearish even if that occurs. As of now, the index has a bearish pattern of lower highs and lower lows. The VIX has risen to its highest level in the last 30 sessions, indicating the potential for a sharp fall.
The rupee could become a target under certain circumstances. The dollar has started hardening. The Reserve Bank of India is still in the process of reversing $26 billion of dollar-rupee FCNR swaps. Government rupee bond yields have stayed low. The FIIs have been net sellers in both rupee equity and in rupee debt through October and early November. Domestic investors are net buyers. Retail volume has eased off post-Diwali as it normally does.
The Nifty Bank remains high-beta. As of now, the Nifty Bank is at around 19,350. A long Nifty Bank call of 20,000c (110) for November 24, and a long November 24, 18,700p (138) costs 248. Either end of this long strangle could be struck, given two big trending sessions in November settlement.
Traders could also sell the November 11, 18,700p (53) and the November 11, 20,000c (20). This would cut the cost of the long strangle by 73, reducing it to175. If the short strangle is struck, the long strangle automatically rise in value and compensate. The Nifty call chain has large open interest (OI) at 9,000c, with good OI at 9,200c and 9,500c and reasonable OI till 10,000c. The put chain has maximum OI at 8,500p, with another big bulge in OI at 8,000p. The put-call ratios are showing bearish values of below 1. Coupled to the high VIX, that is a second bearish signal.
The Nifty is at 8,497. The on-the-money long 8,500c (132), long 8,500p (113) costs 245, with breakevens at 8,255, 8,755. A bullspread with long November 8,600c (82), short 8,700c (46) costs 36 and pays a maximum 64. This position is about 100 points from money. A bearspread with long November 8,400p (79), short 8,300p (53) costs 26 and pays a maximum 74. This is also about 100 points from money and it has a better risk :return ratio. Combining these, a long 8,600c, long 8,4000p, short 8,700c, short 8,300p yields a long-short strangle set with a cost of 62 and a payoff of 38. The breakevens are at 8,662, 8,338. The next three or four sessions could be very volatile and define the long-term trend.
In India, the shockwaves continue from the Tata Group. Lacklustre second quarter results also weigh down sentiment. Yields are high in all global bond markets and there's a strong consensus that the US Federal Reserve will raise rates in December.
The Nifty broke down to 8,400 on last Friday and it has pulled back till the 8,500 level on the estimates that Mrs Clinton is leading in early voting and the news that the FBI has not found any incriminating e-mails. News flow will continue to be the determinant of trends.
A move till either 8,100, or till 8,800 could arise, with a breakout or a breakdown, depending on election results. The market would clearly favour a Clinton win but it might remain bearish even if that occurs. As of now, the index has a bearish pattern of lower highs and lower lows. The VIX has risen to its highest level in the last 30 sessions, indicating the potential for a sharp fall.
The rupee could become a target under certain circumstances. The dollar has started hardening. The Reserve Bank of India is still in the process of reversing $26 billion of dollar-rupee FCNR swaps. Government rupee bond yields have stayed low. The FIIs have been net sellers in both rupee equity and in rupee debt through October and early November. Domestic investors are net buyers. Retail volume has eased off post-Diwali as it normally does.
The Nifty Bank remains high-beta. As of now, the Nifty Bank is at around 19,350. A long Nifty Bank call of 20,000c (110) for November 24, and a long November 24, 18,700p (138) costs 248. Either end of this long strangle could be struck, given two big trending sessions in November settlement.
Traders could also sell the November 11, 18,700p (53) and the November 11, 20,000c (20). This would cut the cost of the long strangle by 73, reducing it to175. If the short strangle is struck, the long strangle automatically rise in value and compensate. The Nifty call chain has large open interest (OI) at 9,000c, with good OI at 9,200c and 9,500c and reasonable OI till 10,000c. The put chain has maximum OI at 8,500p, with another big bulge in OI at 8,000p. The put-call ratios are showing bearish values of below 1. Coupled to the high VIX, that is a second bearish signal.
The Nifty is at 8,497. The on-the-money long 8,500c (132), long 8,500p (113) costs 245, with breakevens at 8,255, 8,755. A bullspread with long November 8,600c (82), short 8,700c (46) costs 36 and pays a maximum 64. This position is about 100 points from money. A bearspread with long November 8,400p (79), short 8,300p (53) costs 26 and pays a maximum 74. This is also about 100 points from money and it has a better risk :return ratio. Combining these, a long 8,600c, long 8,4000p, short 8,700c, short 8,300p yields a long-short strangle set with a cost of 62 and a payoff of 38. The breakevens are at 8,662, 8,338. The next three or four sessions could be very volatile and define the long-term trend.