The Nifty breached all the important support levels in Monday's trading session. However, a recovery in the last hour of trading took the index above 4,000 to close at 4,073 after losing 155 points.
Nifty September futures closed with a 20-point premium to the spot market after trading at a discount of 25-30 points in the intraday trade. September futures witnessed short-covering above the 4,000 level, with the last hour of trade clocking almost 20 per cent of the total traded volumes.
The index has good support in the range of 3,960 to 4,000 and it will hold the index against any dip. Technically, momentum indicators are in the oversold zone and therefore one can expect a near-term rebound around 4,150-4,200 levels. However, as long as the Nifty remains below 4,200, its short- and medium-term outlook remains weak.
According to Siddhartha Bhamre, a derivatives and equity analyst at Angel Broking, though the downward risk for the Nifty is limited to 100-150 points, it may see an upside of 200-300 points from the current level. The implied volatility at 3,800-3,900 put is considerably higher at 55-56 per cent, up from 33 per cent last week. It does not make sense to buy puts at 3,800-3,900 strikes when the downside is limited to 100-150 points, said Bhamre.
Option traders were seen selling puts of 3,600-4,000 strikes. The 3,900 and 4,000 put strikes were more active, with the open interest (OI) for the 4,000 strike up by 0.67 million shares and the OI for the 3,900 strike up by 0.81 million shares. Market analysts see strong support for the Nifty at these levels.
