 "October may see large swings or a big one-way trend develop")
The market has several major events to weigh and discount in the short-term. The RBI's policy review held both rates and liquidity. But the dollar and the euro will see policy changes in the near-term. The dollar is hardening on the basis of the Fed ending its QE3 this month. The euro is all set to soften if the European Central Bank starts loosening up as Mario Draghi has promised.
On the domestic front, the flow of Q2 corporate results is expected to start, along with macro-economic data like the Index of Industrial Production. The global sentiment was bearish through last week but there was a recovery on last Friday and Monday on the basis of good US employment data. India was shut but it is quite possible that the market will open high today due to this.
However, there is an anticipation that FII flows could slow or reverse in the short-term. The advances-declines ratios are negative. FIIs have been sellers in the past few sessions and domestic institutions have been very moderate buyers.
If the dollar does harden, pharmaceuticals and information technology are the two obvious areas where there would be a bullish effect. IT is more likely to be backed in the very short-term, given that Infosys will, as usual, kick off Q2 results. If Infosys does well, the entire industry could see an uptrend. In the forex market itself, a long dollar-rupee and a short euro-rupee both look reasonable.
In the meantime, option premiums remain high and the Vix has risen. There is definitely a fear-factor in the market. The Nifty has tested successive supports below 8,000. The latest bounce was from the 7,850 level. If that support breaks, the index could slide till 7,775 or 7,700, going by Fibonacci-based retracement calculations. Dips below 7,700 could mean initiation of a strong intermediate downtrend.
The Bank Nifty is a big question-mark. If FII selling continues, it could hit the private banks. However, the Bank Nifty could hold at support within the 15,200-15,300 range. On the upside, a climb till 15,600 is possible. The financial index would hit massive resistances above 15,600.
The Nifty's Put-Call ratios look bearish. The Nifty's put-call ratio is at 0.99 for the three-month set and it's just above 1 for the October series. The Nifty Call chain has massive open interest (OI) at October 8200c, which is the likely upper limit on a bounce. The Put chain has a lot of OI down till 7,500.
The spot Nifty index closed at 7,945 with the futures at 7,982.15 on Wednesday. Given the high VIX and the fact that it's early in the settlement, the option trader could look at far-from money options. There is a good chance that October will see large swings or a big one-way trend developing. While it may seem tempting, it would be dangerous to sell options for that reason.
A far-from money bullspread of long Oct 8,100c (57) and short 8,200c (29) costs 28 and pays a maximum of 72. A FFM bearspread of long Oct 7,900p (77) and short 7,800p (49) also costs 28 and has a maximum payoff of 72. Combining these two contracts, gives a negative risk:return ratio, with a cost of 56 and max payoff of 44.
On the domestic front, the flow of Q2 corporate results is expected to start, along with macro-economic data like the Index of Industrial Production. The global sentiment was bearish through last week but there was a recovery on last Friday and Monday on the basis of good US employment data. India was shut but it is quite possible that the market will open high today due to this.
However, there is an anticipation that FII flows could slow or reverse in the short-term. The advances-declines ratios are negative. FIIs have been sellers in the past few sessions and domestic institutions have been very moderate buyers.
If the dollar does harden, pharmaceuticals and information technology are the two obvious areas where there would be a bullish effect. IT is more likely to be backed in the very short-term, given that Infosys will, as usual, kick off Q2 results. If Infosys does well, the entire industry could see an uptrend. In the forex market itself, a long dollar-rupee and a short euro-rupee both look reasonable.
In the meantime, option premiums remain high and the Vix has risen. There is definitely a fear-factor in the market. The Nifty has tested successive supports below 8,000. The latest bounce was from the 7,850 level. If that support breaks, the index could slide till 7,775 or 7,700, going by Fibonacci-based retracement calculations. Dips below 7,700 could mean initiation of a strong intermediate downtrend.
The Bank Nifty is a big question-mark. If FII selling continues, it could hit the private banks. However, the Bank Nifty could hold at support within the 15,200-15,300 range. On the upside, a climb till 15,600 is possible. The financial index would hit massive resistances above 15,600.
The Nifty's Put-Call ratios look bearish. The Nifty's put-call ratio is at 0.99 for the three-month set and it's just above 1 for the October series. The Nifty Call chain has massive open interest (OI) at October 8200c, which is the likely upper limit on a bounce. The Put chain has a lot of OI down till 7,500.
The spot Nifty index closed at 7,945 with the futures at 7,982.15 on Wednesday. Given the high VIX and the fact that it's early in the settlement, the option trader could look at far-from money options. There is a good chance that October will see large swings or a big one-way trend developing. While it may seem tempting, it would be dangerous to sell options for that reason.
A far-from money bullspread of long Oct 8,100c (57) and short 8,200c (29) costs 28 and pays a maximum of 72. A FFM bearspread of long Oct 7,900p (77) and short 7,800p (49) also costs 28 and has a maximum payoff of 72. Combining these two contracts, gives a negative risk:return ratio, with a cost of 56 and max payoff of 44.