Markets have corrected significantly from the highs and are trying to stabilize here. We currently witness squaring up of short positions in the market.
Volumes are currently low, whereas high volumes were witnessed when market was falling. Stock specific action is dominating the markets today. Nifty was in a discount during the first few trading sessions of February and has now turned into a premium which is a positive for the markets.
Analyzing the derivative statistics we witness that put-call ratio is in a narrow range of 0.96 to 1.01, cost of carry has increased along with squaring up of short positions. There has been pressure on Nifty in crossing 4800 – 4850 level so one should remain hedged until Nifty does not trade above 4850.
Looking at the calls we witness that 4800, 4900 and 5000 strike calls are the most active with 41 lakh, 60 lakh and 58 lakh shares respectively, standing in open interest. It is also encouraging seeing the March 5300 and 5200 calls active. On the Puts front 4700, 4800 and 4600 strike puts are most actively traded with 67 lakh, 56 lakh and 56 lakh outstanding shares respectively. There have been some signs of shorting in 4400 strike puts.
We recommend remaining hedged and one may reduce hedged positions above 4850 levels.
Strategy - 1
Buy 1 lot 5100 Call @ 12, Buy 1 lot 5000 Call @ 30, Sell 3 lots 5200 Call option at 12, Sell 4 lots 4400 puts at @18
This strategy will provide a minimum return of 3.36% in the range of 4380 to 5580. Returns increases above 5000 and maximum return is about 18.9% at 5200 Nifty levels. Loss will start coming in above 5600 and below 4380 levels.
Strategy – 2
Sell 1 lot March 3700 Put @ 10and Sell 1 lot 3800 Put @ 13.5
This strategy is for bullish traders and especially for traders who believe that there will be nothing negative during the budget days. Selling 3700 and 3800 puts will give a return of 4.35% and will give loss only below 3850 levels.
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