Background signals mildly positive

However, there's a huge resistance above Nifty 3450, which is likely to stop the bulls.

The market is likely to be locked in range-trading going into the settlement, if last week's pattern continues. The background signals are mildly positive but there's a huge resistance above Nifty 3450, which is likely to stop the bulls.

On the downside, there is apparent support between 3275-3315. It's unlikely to close outside the 3250-3450 range until Thursday at least. However, daily volatility will probably rise to about 70-80 points and Thursday itself could feature a bigger swing.

Index strategies
The spot Nifty is locked at 3385, the August future is at 3387.55, the September future is at 3375.30 and the October future is at 3371.10. Open interest has expanded in all three series.

Our previous recommendation of a calendar bear-spread long September- short August has already paid off since the differential has narrowed considerably.

There is still enough of a differential to make it worth holding for a couple more sessions. The chances are very good that there will be a big "rollover" as the long August contracts are closed and long September contracts opened.

Of the other two indices, the Banknifty August future is at 4501 with the spot at 4495. Liquidity is thin in the September contract, which is trading at 4504. The differential is not worthwhile. If you decide to trade this, go long in either of the futures contract since several large components of the index looks bullish.

The CNXIT is at 4376 in spot with the August future at 4385.85. There is almost zero liquidity in the September series. We don't have a clear technical perspective in the index or its components. Avoid until post-settlement.

In the Nifty options segment, open interest has expanded dramatically in the Nifty August options as well as in the September options. In both case, we also have highly oversold put-call ratios.

The August PCR is at 1.44 while the September PCR is well over 2. In the absence of other strong technical signals, we would have to say this is a bullish indicator that is likely to influence the market heavily. At least until settlement, the market should therefore, go up.

In the August segment, expiry is an issue. However the ratios are attractive. We can take a narrow bullspread with long 3400c (29.4) versus short 3450c (12.95).

This has a cost of 17 and a maximum payout of 33. A bearspread with long 3400p (39.65) and short 3350p (19.85) costs 20 and it can pay a maximum of 30. This spread is already "in-the-money" and in effect, you are paying 5 for the chance of making 30.

In the September segment, we can look at the same sort of positions. A long 3400c (93.9) and a short 3450c (71.25) costs about 23 and pays a maximum of 27. A long 3400p (114) and a short 3350p (88) costs about 26 and pays only a maximum of 24.

These ratios aren't that attractive but the extra month is valuable. These premiums will drop by Thursday. If you wish to take a strangle, it would have to be in the September segment due to expiry considerations.

But there's insufficient liquidity far from money. A long 3450c (71) and a long 3250p (52) is the best you can do in terms of width. This costs 125 and pays only for a move outside 3125-3575.

While that could happen within September, this strangle cannot be laid off with a wider short strangle to cut down on risk and initial payment. So, strangles maybe better avoided until changeover, I think.

Therefore, the best option positions at the moment appear to be the 3400-3450 buillspread in August and the 3350-3400 bearspread in the same month. Both these positions could be struck easily, given our projected intra-day high-low ranges.

Against that, there is the fear of expiry. I would narrow it down to say that the bullspread is the more attractive position given that the market does seem technically bullish. On the other hand, the bearspread is already in the money.

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STOCK FUTURES/OPTIONS

In the stock F&O section, three BankNifty components seem bullish. SBI, PNB and UTI Bank appear to be worth long futures positions. So do Gail, Sterlite, Essar Oil, IPCL and Hindalco. There is nothing else that seems very obviously bullish. Even in these stocks, the expiry risk is a serious issue.

There are no attractive arbitrages available inside the universe of the most heavily-traded F&O stocks - the differences between the underlying and the futures series are negligible in most cases or there's insufficient liquidity. If you take long positions these will have to be naked and you may have to be prepared to rollover into September.

On the short side, HPCL and BPCL appear to be taking a hammering , But both have landed on supports and if the general trend is bullish, it's dangerous shorting these.

There is likely to be a lot of daily volatility - that is, more than the usual settlement volatility in the stock F&O segment as well during the next four sessions.

The lack of arbitrage opportunities means that there will be a lack of arbitrageurs. That will cut down on overall liquidity and lead to frantic covering and rollovers on Thursday. Again, the short-term effect is likely to be net bullish.

The stock options segment is not worth considering until the rollover occurs. The lack of liquidity is one problem. The other is the lack of obvious long candidates outside the list given above. .The majority of stocks will move with the market, which means that they will also range-trade.