 "Trend appears bullish but brace for high volatility")
Steady buying from foreign institutional investors (FIIs) ensured index gains through last week. But, there were signs of caution on Monday ahead of the Reserve Bank of India's (RBI's) policy. The central bank is widely expected to maintain status quo but what Dr Rajan says will be important since it will offer hints as to future monetary action.
A fair amount of volatility is expected across forex markets in the near-term. The US' Federal Open Markets Committee (FOMC) is due to have a policy meeting in mid-month. That will be followed by the UK's referendum of "Brexit" on June 23. Both events may cause some volatility and if the UK does actually exit, there could be massive swings.
Meanwhile, growth may be strengthening in India. The latest GDP estimates suggest that growth hit 7.9 per cent in January-March 2016. Barring banks and other financials, corporate results have looked good. Monsoon expectations remain strongly positive. The net institutional attitude has been moderately positive in June. The domestic institutions are net sellers but the FIIs are buying. So is retail.
The technical position continues to look bullish. The Nifty is now well above its own 200-DMA and it has consolidated well above that level. A sequence of higher highs has been registered. The long-term trend appears to be positive and so does medium-term trend. Breadth and volume indicators also look positive. The short-term trend may be dependent on RBI's attitude and following on from that, the market will respond, one way or another, to the Fed meet and Brexit.
A strangle with a long June 17,500p (279), long June 18,000c (203) looks reasonable, with the Nifty Bank at 17,670. Either end could be hit inside a single big session. In fact, a wider strangle of long 17,000p (134), long 18,500c (73) may be tempting since there's ample time in the settlement. This wider strangle could be hit in three big trending sessions.
The put-call ratios (PCR) suggest that the trader-sentiment remains bullish. Both the June PCR and the 3-month PCR are in positive territory with the ratios held at above 1. In the June series, open interest (OI) peaks in the calls chain at 8,300c and 8,400c with reasonable OI till 9,000c. The OI is the June put series has its largest peak at 8,000p but there's plenty of OI down till 7,000p.
The Nifty closed at 8,201 on Monday with a futures premium of about 30 points. The 8,200c (132) and 8,200p (82) would cost a combined 215. Note the asymmetric premiums. A bullspread of long June 8,300c (82) short 8,400c (45) costs 37 and pays a maximum 63 and it's about 100 points from money. A bearspread of long June 8,200p (104), short 8,100c (70) costs 34 and pays a maximum 66 and it is bang on the money. A wider long 8,100p (70), short 8,000p (46) costs 24 at 100 points from money.
A zero-delta strangle of long 8,100p, long 8,300p, would cost 152. It could be offset with a wider strangle of short 8,000p, short 8,400c costing 91. The long-short strangle set would cost a net 62. It is unattractive because the maximum return is 38. Inverting this to sell a short 8,300c, short 8,100p, and covering with long 8,000p, 8,400c may be risky. A conservative trader could wait one session and see if the RBI's policy statement triggers a sharp movement in either direction.
A fair amount of volatility is expected across forex markets in the near-term. The US' Federal Open Markets Committee (FOMC) is due to have a policy meeting in mid-month. That will be followed by the UK's referendum of "Brexit" on June 23. Both events may cause some volatility and if the UK does actually exit, there could be massive swings.
Meanwhile, growth may be strengthening in India. The latest GDP estimates suggest that growth hit 7.9 per cent in January-March 2016. Barring banks and other financials, corporate results have looked good. Monsoon expectations remain strongly positive. The net institutional attitude has been moderately positive in June. The domestic institutions are net sellers but the FIIs are buying. So is retail.
The technical position continues to look bullish. The Nifty is now well above its own 200-DMA and it has consolidated well above that level. A sequence of higher highs has been registered. The long-term trend appears to be positive and so does medium-term trend. Breadth and volume indicators also look positive. The short-term trend may be dependent on RBI's attitude and following on from that, the market will respond, one way or another, to the Fed meet and Brexit.
A strangle with a long June 17,500p (279), long June 18,000c (203) looks reasonable, with the Nifty Bank at 17,670. Either end could be hit inside a single big session. In fact, a wider strangle of long 17,000p (134), long 18,500c (73) may be tempting since there's ample time in the settlement. This wider strangle could be hit in three big trending sessions.
The put-call ratios (PCR) suggest that the trader-sentiment remains bullish. Both the June PCR and the 3-month PCR are in positive territory with the ratios held at above 1. In the June series, open interest (OI) peaks in the calls chain at 8,300c and 8,400c with reasonable OI till 9,000c. The OI is the June put series has its largest peak at 8,000p but there's plenty of OI down till 7,000p.
The Nifty closed at 8,201 on Monday with a futures premium of about 30 points. The 8,200c (132) and 8,200p (82) would cost a combined 215. Note the asymmetric premiums. A bullspread of long June 8,300c (82) short 8,400c (45) costs 37 and pays a maximum 63 and it's about 100 points from money. A bearspread of long June 8,200p (104), short 8,100c (70) costs 34 and pays a maximum 66 and it is bang on the money. A wider long 8,100p (70), short 8,000p (46) costs 24 at 100 points from money.
A zero-delta strangle of long 8,100p, long 8,300p, would cost 152. It could be offset with a wider strangle of short 8,000p, short 8,400c costing 91. The long-short strangle set would cost a net 62. It is unattractive because the maximum return is 38. Inverting this to sell a short 8,300c, short 8,100p, and covering with long 8,000p, 8,400c may be risky. A conservative trader could wait one session and see if the RBI's policy statement triggers a sharp movement in either direction.