Consider shorting Nifty Sept futures

It was a stellar show which put the Nifty futures within a striking distance of the 5000-mark. It closed last week at 4852.6 against the previous week's close of 4513, a whopping gain of 7.52 per cent. The Nifty futures moved into a premium zone; it now commands a premium of 14.95 points over the Nifty close of 4837.55, mainly due to a short-covering especially on Friday.

There was smooth rollover on the open interest front also. Open Interests, which had hit an all-time high of Rs 1,02,077 crore on July 28, improved to Rs 93,177 crore from last week's position of Rs 84,447 crore. The rollover of the Nifty futures is about 25 per cent; however, interestingly quite a few new counters from mid-cap space such as RNRL, S.Kumar's, Tata Chemicals, RPL, JP Hydro, Petronet LNG and Triveni Engineering saw huge accumulation of open interest positions, indicating action shifting to new sectors/stocks.

Outlook: The Nifty futures now faces crucial support at 4760. As long as it stays above this mark, there is no threat to the bull party. However, if it dips below that point, it faces a minor support at 4610 and then at 4534.

Recommendation

We expect the Nifty to begin the week on a positive note. However, we feel the market is in an extremely overbought position. Investors can consider shorting October futures if the Nifty futures dips below 4760 (October futures, On Friday, closed at 4832.65). Keep the stop loss at 4760 and trail the Nifty so as to maximise profits in case Nifty futures dips below that level. This recommendation is for a slightly longer period. Hold the position for at least two weeks.

This recommendation is valid only for those who are willing to assume some risk, this week being settlement week for the September series. Generally during settlement week, market tends to experience high volatility.

Implied volatility

Puts implied volatility (IV) increased to 27 per cent even as call IV slumped to 19 per cent (24 per cent). This indicates that a lot of call positions were squared off when the market surged on Friday.

Put/call ratio

While volume wise put call ratios (PCR) dipped to 1.20 (1.80), open interest PCR improved to 1.67 (1.51); this also suggests that a lot of calls were squared off on Friday. The increase in open interest positions is mainly due to carrying over of fresh short positions.

Stock futures

RNRL (76.85): The stock witnessed a sharp surge on Friday along with rise in open interest positions. While it faces a resistance at 80, (the high it touched on Friday), RNRL enjoys support at Rs 50 level. Consider shorting of RNRL October future keeping the stop loss at Rs 80. Investors may also consider buying RNRL October 60 put at Rs 1.40. The possibility of RNRL touching its support level appears bright, if it dips below 71.5. Market lot is 7150 units per contract.

FII trends: The cumulative FII positions as a percentage of gross market positions in the derivative segment as on September 6 was 35.03 per cent. FIIs pumped in significant money particularly on Wednesday (Rs 4254.83 crore). Friday figures will be available only on Monday. They hold index futures of Rs 18,407 crore against last week's level of Rs 18,278 crore and stock futures of Rs 30,790 crore (Rs 28,112 crore). Position wise, they currently hold 7,74,926 contracts (8,06,334 contracts) of index futures and 9,34,356 contracts (8,96,185 contracts) of stock futures. This indicates that while they are not betting on index future, FIIs are accumulating individual stock futures. They also increased their positions in the options market as a hedge.