If the market continues to fall till Wednesday, investors holding long futures should not expect a recovery on the settlement day
Thanks to sharp fall in Hindustan Lever preceding and following its announcement of first-half results and the decline in index heavyweights such as Reliance and Infosys, the Nifty lost 4 per cent to close at 932.20 last Friday. Following the cash market, the Nifty October futures also closed the week lower at 935.90. Both FII and mutual funds remained net sellers during the week.
Satyam remained the most actively traded counter in both options and futures segments, followed by Infosys. After a small rally in the previous week, Satyam climbed down over the last week. Satyam October futures lost 5 per cent over the week to close at Rs 212.90.
As expected, Infosys saw a correction. The stock lost two per cent over the week and closed at Rs 3754.40. The October futures of Infosys, in tandem with the cash market, also lost 2 per cent over the week and closed at Rs 3743.
"It is very difficult to predict how the market will behave in the near future. We could see some consolidation in the coming week," remarked a Delhi based analyst.
Technically, the signals from the Nifty haven't been too encouraging. We think the situation worsen. Of course, a consolidation at current levels cannot be ruled out.
We expect a sideways movement of the Nifty led by some consolidation in HLL and Reliance and an upward move by Infosys. If the market continues to fall till Wednesday, all those holding long futures should not expect a recovery on the settlement day.
For Nifty, a less risky recommendation could be selling an October 950 call. If the market shows a slight revival on Monday, one can go for a short strangle by selling an October 930 put and the same month 950 call.
In the long term, technically, we don't see any hope from the broader market. So if you want to hedge, buy a put, otherwise you can sell a future and cover it with a long call. If you are still holding a bull spread and don't see a sign of consolidation on Monday, square up your losses.
Coming to tech counters, going by technical charts, we don't see Infosys going down further, but at the same time we are apprehensive about Satyam. One may continue with the bull spread that we recommended a couple of weeks back - long October 3600 put and short 3700 put.
The position is still yielding positively and we expect it to remain positive till the expiry. One can also go for a short strangle by selling a October 3900 call and the same month 3500 put. We don't see too much risk in adopting this strategy.
In case of Satyam, there might be some consolidation in the coming week resulting into a sideways movement. But in next two-three weeks, we don't see any sign of upward movement. One can sell an October 200 put.
