The Nifty opened in the positive, moved in a narrow range thereafter and closed near the day's high on short-covering in index futures and key stocks futures. The trading volume in the futures and options (F&O) segment declined a bit as participants were wary of taking positions at higher levels. The Nifty March futures settled at a discount to the spot as there was short build-up when the Nifty started trading above 5,075. In the end, the March futures added 2.14 million shares in open interest through a blend of long and short positions, indicating resistance at higher levels.
The participants expected significant volatility from current levels as they bought the 5,000-strike put and the 5,100-strike call options.
The simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying and expiration date is taken when the options trader thinks the market will experience significant volatility in the near term. The India Volatility Index declined 4 per cent today, indicating the extent by which an underlying index is expected to fluctuate in the near term.
No wonder, the 5,300 strike call, which was available at an average premium of Rs 20 per share, added almost one million shares in open interest through buy-side trades. The 5,000 strike put added 1.83 million shares in open interest through buy-side trades, which indicates the participants have protected themselves against the downside by buying the 5,000 strike put. However, the 5,100 put added 1.10 million shares in open interest through sell-side trades as a few participants expected that the index might cross 5,100 and target 5,170 in the near future.
A few stocks futures such as Reliance Industries, ICICI Bank and State Bank of India closed near the day's high with increase in open interest indicating build-up of long positions. Sugar stocks were expected to see some upward price action as traders covered short positions in Renuka Sugar, Bajaj Hindustan and Triveni Engineering. DLF and Unitech are likely to be move up due to short-covering by bears.