The Nifty has remained inside a narrow range. It is testing resistance at 5,950-6,000 while maintaining support above 5,750. As and when, there’s a breakout, the market could swing 250 points. Since the low of 5,690 (Nov 26) has not been violated, we have hopes the move would be upwards but there’s a good chance no breakout will occur before settlement (Dec 30)..
The key points to watch are actually 5,690 and 6,070 since a breakout beyond either point would establish either lower low (<5,690) or higher high (>6,070). Hence, breakouts could move till roughly 5,500, or 6,250. Resistance and supports inside the zone lie at approximately 50-point intervals. The 200 Day Moving average is at around 5,580. On the upside, resistance at 6,350 would be difficult to beat.
Volumes have eased in the past few sessions. Advance-declines ratios are almost neutral. Institutional attitude is net negative. Importantly, institutional commitment is low. The FIIs are token net sellers. Domestic FIis have just about counter-balanced FII attitude. Obviously institutional interest levels must change for a serious move. We suspect institutional commitment will stay low until early January..
Carryover is fair – around 30-35 per cent of index derivative volume has moved beyond December. The put call ratios for Nifty options are normal levels and not indicating anything dramatic. The December PCR is at 1.20. Of the subsidiary indices, the CNXIT has looked good but the Bank Nifty has been under a lot of pressure. Watch for breakouts outside Bank Nifty 11,000-11,500 since a 500-point move could occur once that range is breached.
In the Nfty, traders should be prepared for moves between 5,750-6,100 with the possibility of a break till 5,550 or 6,250. An expiry effect is evident but not pronounced yet. Close to money bullspreads and bearspsreads have decent risk:reward ratios.
A long 6,000c (52) and 6,100p (22) costs around 30 and pays a maximum of 70 if 6,100 is struck by settlement. A bearspread of long 5,900p (49) and short 5,700p (26) costs 23 and pays a maximum 77. Obviously the bearspread looks better since the underlying is at 5,947.
A combination long-short strangle that takes both these CTM spreads is roughly 50 points off the money and looks quite interesting. It would cost 53 and pay a maximum of 47 with breakevens at 5847, 6053. Given recent historic high-low ranges of about 100 points a session, there’s a fair chance of squeezing larger profits by settling out one or both ends of this strangle.
If you’re looking for a big move in January,. a long-short strangle of Long Jan 6,200c (57), long Jan 5,700p (63) and a short Jan 6400c (21) and short 5,500p (32) is possible. This costs 67 and it could pay a maximum of 133. The costs can be reduced with a short December 6,200c (8) and short December 5,700p (15). This is safe because the long Jan positions will compensate in profitability if either short December position is struck.
