 "Nifty 8,000 and 8,300 are key levels to watch out for")
Brexit and "Rexit" dominated conversations. Brexit still looks wide open. The tragic assassination of Labour MP Jo Cox who was campaigning to stay in the EU may have pushed the sympathy vote. However, the opinion polls suggest that the "leavers" still have a strong chance of pulling the UK out.
Either way, expect massive currency swings over the next two days and particularly over Wednesday-Friday as the referendum goes through. There is also a good chance for big moves in equity. A vote to remain will see the speculators covering the pound shorts and euro shorts. In that case, the dollar may weaken and probably, yen would also weaken. A decision to leave would see the pound take a pounding.
The dollar would harden on a Brexit and most probably, the euro would also weaken with political scientists suggesting that a decision to leave by the UK would very likely, trigger similar referendums pushed through in other EU nations by isolationist elements, including big ones like France.
The rupee's situation would be a bit of a question-mark. The consequences of Raghuram Rajan's exit has been temporarily obscured by the Brexit but it would mean some nervousness until such time as his successor is appointed. The "Rexit" will be followed immediately by a complicated swap unwinding with upto $34 billion to be redeemed between September and November. If inflation climbs in the meantime, the rupee may be targeted by bears. As of now, it could swing up sharply versus euro and pound if there's a Brexit and it could lose ground equally sharply if there is not. Thus far, FIIs continue with their strategy of selling rupee debt and buying rupee equity.
One potential trade is a calendar spread on the Bank Nifty. The logic goes like this, Assume that the Bank Nifty could see a lot of action. A long June 30 17,200p (116) and long June 30 18,200c (97) costs 213. It would breakeven roughly at 17,000, 18,400. Either end may be exceeded, given just two big sessions. This position can be "covered" with a short June 23 -17,200p (12), short June 23- 18,200c (12). It isn't much but the inflow of 24 would at the least cut the cost of the long strangle if neither end is hit until Thursday (the referendum is on Thursday and time difference is in India's favour.
As of now, the put-call ratios (PCR) are healthy for the Nifty, with the PCR at 1.3. This could change quickly. We are seeing some expiry -related drop in premiums and this may mean an understatement of likely volatility. The breadth is fairly good. The monsoon could boost sentiment.
A bullspread with long 8,300c (70), short 8,400c (34) costs 36 and pays a maximum 64. It is about 60 points from money. A bearspread with long 8,200p (75), short 8,100p (48) costs 37 and pays a maximum 63. This is about 40 points from money. These positions would be effectively zero-delta if they are combined. The resulting long-short strangle set costs 73 and pays only 27 at maximum. But, there is a very good chance that one side of the position will be hit. The breakevens are at 8,127, 8,373. Wider spreads are also possible of course.
Either way, expect massive currency swings over the next two days and particularly over Wednesday-Friday as the referendum goes through. There is also a good chance for big moves in equity. A vote to remain will see the speculators covering the pound shorts and euro shorts. In that case, the dollar may weaken and probably, yen would also weaken. A decision to leave would see the pound take a pounding.
The dollar would harden on a Brexit and most probably, the euro would also weaken with political scientists suggesting that a decision to leave by the UK would very likely, trigger similar referendums pushed through in other EU nations by isolationist elements, including big ones like France.
The rupee's situation would be a bit of a question-mark. The consequences of Raghuram Rajan's exit has been temporarily obscured by the Brexit but it would mean some nervousness until such time as his successor is appointed. The "Rexit" will be followed immediately by a complicated swap unwinding with upto $34 billion to be redeemed between September and November. If inflation climbs in the meantime, the rupee may be targeted by bears. As of now, it could swing up sharply versus euro and pound if there's a Brexit and it could lose ground equally sharply if there is not. Thus far, FIIs continue with their strategy of selling rupee debt and buying rupee equity.
One potential trade is a calendar spread on the Bank Nifty. The logic goes like this, Assume that the Bank Nifty could see a lot of action. A long June 30 17,200p (116) and long June 30 18,200c (97) costs 213. It would breakeven roughly at 17,000, 18,400. Either end may be exceeded, given just two big sessions. This position can be "covered" with a short June 23 -17,200p (12), short June 23- 18,200c (12). It isn't much but the inflow of 24 would at the least cut the cost of the long strangle if neither end is hit until Thursday (the referendum is on Thursday and time difference is in India's favour.
As of now, the put-call ratios (PCR) are healthy for the Nifty, with the PCR at 1.3. This could change quickly. We are seeing some expiry -related drop in premiums and this may mean an understatement of likely volatility. The breadth is fairly good. The monsoon could boost sentiment.
A bullspread with long 8,300c (70), short 8,400c (34) costs 36 and pays a maximum 64. It is about 60 points from money. A bearspread with long 8,200p (75), short 8,100p (48) costs 37 and pays a maximum 63. This is about 40 points from money. These positions would be effectively zero-delta if they are combined. The resulting long-short strangle set costs 73 and pays only 27 at maximum. But, there is a very good chance that one side of the position will be hit. The breakevens are at 8,127, 8,373. Wider spreads are also possible of course.