Market Investors: Nifty50 likely to remain weak; investors can deploy ‘Bear Put Spread’

Statistically, May has been a month when foreign institutional investors (FIIs) usually sell in the cash market, true to the saying ‘Sell in May and go away’.

However, this time, the developed country ‘bond’ market trigger and the following dollar index breach of the 100-mark made it necessarily a sell for the Indian markets.

The P-notes equity derivative centric trades for India have been more into selling call options and buying puts; however, the only positive as of now is that the India VIX has not really breached the 26% on the upside.

A simple norm to this index is that: – every 1point surge roughly opens around 160-180 pts additional swing in the Nifty.

FIIs managed to again carry short positions in the index, majorly the NIfty Futures and strikes of 16,900-17,000 seem to be loaded with huge call option sellers.

We expect the VIX to touch around 24-25% vs Friday’s close of around 21.25% – this calculates to around a more 300-400 pts in Nifty on downside possibility.

However, since the VIX has not breached 26% as of Friday, lower prudence on the OUT-OF-THE-Money options makes a Bear Put Spread reasonable.

Strategy:


Buy Nifty 12 May16500PE @ 190 and Sell 16200 PE @ 90 spread at 100, for a target of 200.

Sectors wise Power and Banks have seen the highest short futures positions and IT and Media might be the sectors to bounce first once the Nifty finds support.

We continue with our Sell on rise strategy in the Indian markets as we expect the range to be 16900-16000 for the Nifty50 in the short term.

(The author is VP Equity Derivatives, Religare Broking Limited)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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