The Nifty failed to cross its recent high of 3,720 and closed in the red on profit booking at higher levels. The undercurrent is still positive, but investors are booking profits on uncertainty of poll results. The Nifty has support at the 3,600-level and any trend reversal is seen if the index closes below 3,500. For the long trade, the Nifty has to close above 3,720.
Profit booking at higher levels was seen in Reliance Industries, Infosys Technologies and ONGC. The Instanex FIIs Index of 15 stocks indicates that FIIs have booked profit in index heavyweights such as ITC, Hindustan Unilever, ONGC, State Bank, Larsen & Toubro and TCS. HDFC has seen some buying from foreign institutions.
According to analysts, one must avoid options given high volatility in the markets. It seems the traders were writing out-of-the money (ATM) calls (strikes above 3,700) and puts (strikes below 3,600) since start of May as the pure risk premium for these calls and puts were around 100-150 points. The ATM options writing gave ample opportunity to make money , given that high premiums sink in the last week of expiry and vanish by the time of expiry.
The open interest (OI) at ATM calls accounts for 54 per cent of the total of 26.96 million shares, indicating resistance above the 3,700-level. Similarly, OI for ATM puts accounts for 92 per cent of the total OI of 36.25 million shares in put options, indicating support below the 3,600-level. The 3,600 strike put and 3,800 call hold highest OI among all puts and calls, indicating support and resistance levels.
