By Gaurav Arora
Nifty August futures is trading with a premium of around 45 points whereas September futures is currently at a premium of 170 points. After making record highs, the index witnessed some profit taking though intensity was high. However, it has been consolidating in a range for the past few sessions.
There was a substantial reduction in OI suggesting participants are not interested in creating fresh positions. To put it in numbers, the OI stands at about 5.35 lakh contracts compared to around 6.33 lakh at the start of the series. Nifty is holding EMA 63 by a decent margin but not yet claimed shortest MAs indicating this sideways tone may continue.
Bank Nifty Performance
After a period of underperformance, Bank Nifty/ Nifty ratio is seeing some halt or a pause. The ratio (Bank Nifty/Nifty) which was at 2.05 at the start of series is now at 2.7. Going ahead, expect Bank Nifty to trade in tandem with the benchmark. 49,600-800 would be the strong support for the Banking Index. This slight shift from underperformance to trading-at-par is underpinned by favorable Risk Reward Ratio.
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FII Activity
The Foreign Institutional Investors (FII) Net Index Long exposure has fallen to approximately 50%, down from 57% at the beginning of the new series, indicating some negative bias. Apart from that, they have not been consistent in cash & stock futures positioning.
Support and Resistance Levels
The critical support level for Nifty is at around 23,900-24,000. A decisive close below this range could indicate a further downside. The Volatility Index (VIX) for Nifty is currently around 16, with an expected range of 14-20 moving forward. Data points indicate a relatively volatile environment for the near term. This volatility may remain keeping track of geopolitical tensions, FED & RBI interest rate decisions.
The Volume Weighted Average Price (VWAP) for Nifty is around 24,500-550, marking this range as a key level to watch. A breach and sustenance above this would bring next leg of upmove. Till then, expect index to trade in the range of 24000-24500.
For Bank Nifty, the VWAP is around 51,200-51,300, only above which one may expect some positive momentum, till then look for shorting. Indications are in the favor of Bank Nifty ceasing its underperformance and could start performing well.
Trading Strategy and Sector Outlook
A Bounce towards the 50,900-51,000 range for Banking Index should be viewed as a shorting opportunity, with a stop loss set at 51,300.
Sector-wise: All sectors have been contributing on a rotational basis. Going ahead, we believe Oil & Gas, Infra & Pharma would be strong performers within Nifty.
Strategy: Short Straddle
A recommended strategy for Nifty is a Short Straddle Strategy. This involves selling Nifty 22nd August 24,300 Call Option (CE) at 230, selling the Nifty 22nd Aug 24,300 Put Option (PE) at 205. The combined spread of 435 has a target of 270.
Conclusion
The August series for Nifty futures presents a sideways or consolidation outlook, less Open Interest implying less participation. Options Data also suggest the same. The recommended Short Straddle strategy offers a tactical approach to trading in such a scenario.
Oil & Gas, Infra & Pharma sectors emerge as strong contenders within Nifty, offering promising trading opportunities.
(Disclaimer: Gaurav Arora is the Derivatives Analyst at Religare Broking Ltd. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)