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| The Nifty is running into an area of immediate resistance and will probably trade within 1350-1425 |
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| The market continues to look bullish. The Nifty put-call ratio is in a nearly neutral zone at 0.32. At any rate, the markets usually haven't turned around when put-call has been in the zone between 0.3-0.4 range. |
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| Right now, trends in all timeframes look positive. As usual, option premiums are fairly high and this implies high volatility. |
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| But the Nifty is running into an area of immediate resistance and will probably trade within the range of 1350-1425. |
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| If it does cross above 1425, it could move a lot further up. In such circumstances, being an option seller is tempting. |
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| It's worth taking a bull spread with long 1400c (33.2) and short 1410c (27.3) for a potential payoff of 4 versus and outlay of 6. |
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| Please note that the 1400c is likely to appreciate because at Friday's prices, a long 1390c (39) versus short 1400c (33) could be profitable without risk. |
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| Another possibility in the Nifty is to take a straddle with long 1410c (27.3) and long 1390p (28). This costs 55 and is profitable outside 1345-1465. The reverse position is also possible - it depends on the trader's view. |
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| My gut feel would be to go with the short straddle and perhaps take a long 1450c if the Nifty lifts past 1425. Right now, it's impossible to find liquidity above the 1410 levels. |
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| In the Nifty futures market, the futures are now trading at a premium to spot though October and November are at backwardation with regards to September futures. This has been unusual during the entire rally and may just be a signal of a trend reversal. |
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| The temptation is to take a bear spread by selling September (1401.8) and buying October (1400.8). |
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| Option stocks: Among option stocks, bullish prospects can be noticed in Tisco, Digital Equipment, HCL Tech, Infosys, NIIT, Satyam, Wipro, HLL and Reliance. HPCL could see further declines. |
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| Long futures positions in bullish stocks are possible while it is possible to sell HPCL September futures and buy October futures hoping to make money on a temporary decline followed by a recovery. |
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| Among options possibilities, Digital (CMP 554) has a potential target of 575 with a possible decline to support at 530. |
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| A bull spread of long 560c (27.5) versus short 580c (20.5) has a reasonable potential payoff of 13 for an outlay of 7. Traders should note the lack of close to money puts in Digital. |
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| HCL Tech (212) has a resistance at 217 with the possibility of moving to 235 if the 217 barrier is crossed. |
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| On the downside, it could drop till around 187. This means the current spot is bang in-between the 187-235 zone. |
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| A combined position of long 215c (13.5) and long 200p (7) is profitable only if the stock moves out of the 180-235 range. |
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| So, it's better to take a naked long position with long 215c. As, and when, liquidity develops above 230, this position can be hedged with a short 230c or 235c. |
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| NIIT is at 146 with the potential to move up till around 154 where it will hit resistance. A long 145c (11) versus short 160c (7) seems like a fair bull-spread. It has a maximum payoff of 11 versus an outlay of 4. |
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| HLL (194) is stuck at the top of a trading range of 185-195 with the promise of moving up till around 211 if it can close above 195. Take a bull spread with long 200c (7.15) versus short 210c (4) - the potential payoff is 7 versus an outlay of 3. |
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| Reliance's (420) trading pattern is not conducive to technical target projections. But a bull spread by selling puts is possible - this wins provided the stock keeps traveling up. |
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| Sell the 410p (9.7) and buy the 400p (5.65) for a reasonably safe inflow of 4 versus a potential loss of 6. |
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| Infosys (4197) is running into resistance between the current price and 4450. If it crosses 4450, the stock would have a clear run till around 4600. |
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| You can take a bull spread with long 4200c (170) and short 4350c (98) with an outlay of 72 versus a potential profit of 78. |
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| Another possibility is to take a short straddle with short 4300c (118) and short 4100p (110) for a premium inflow of 228 and a position that stays profitable within 3880-4530. |
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| Wipro (1246) will run into immediate resistance and is likely to find it hard going getting past 1300. On the downside, it could react till around 1150. If it does cross 1300, the stock could move a long way. |
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| A long straddle with long 1200p (34) and long 1290c (32) would cost 66 and be profitable if the stock did move outside the 1140-1350 zone. |
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| Satyam (253) is bullish but it could run into resistance at around 265. A bull spread of long 255c (14.5) and short 270c (8.5) costs 6 and could give a payoff of 9. |
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