The Nifty traded in a volatile manner amidst the rollover pressures and finally closed at 5834, down 34 points, on Wednesday. Among the Nifty stocks, only ONGC and M&M closed with gains while most others closed in the red. Ambuja Cement, Wipro and JP Associate were among the weakest counters, recording over 3-4 % fall in the day.
In the midcap space, Bosch, Bata India and Glaxo closed on a strong note while Lanco Infra, Exide Ind and Sterlite Tech closed weaker. Sectorwise, we have correction in frontline IT stocks due to poor results and also in private bank stocks. We have seen Nifty trading in a tight range of 5800 to 5950 over the past week and the index is likely to continue trading in this range. The expiry is likely to be around 5875-5900 level.
What is encouraging in this market is the rate at which the rollovers are taking place. Last month, Nifty moved higher by over 12%. The April series was more of consolidating the gains in March in the 5700-5950 range. Both series saw strong rollovers with the Nifty being near to the monthly highs. This, along with the premium in rollovers, indicates positive bias for the markets in the May series. Going forward, Nifty is likely to trade in the range of 5750 to 5950 before taking any new course. Straddles or strangles can be written to take advantage of the range trading.
5950 is a very strong resistance level for Nifty where in the near past long unwinding was observed. One can strongly go long once that level is breached, taking into consideration the level of premium in Nifty future. Any closing above 5950 can trigger short squeeze resulting in a rally of 100-150 points rally thereon.
Nifty strategy: Short strangle in May (Sell 6100 Call at . 42 and Sell 5600 Put at . 48). The total premium inflow would be . 90. The breakeven for the strategy would be 6190 on the upside and 5510 on the downside. One can go long on Nifty futures above the resistance level of 5950.
(The author is Vice-President - Derivatives Research, Padmakshi Financial Services)
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