Nifty may weaken further, enjoys support at 17,500

Technical analysts say Nifty is headed further down in the coming days after closing below its 20-day exponential moving average last week. The index fell 2.4% last week and underperformed most regional peers. Analysts expect the Nifty to find immediate support at 17,500.


What should investors do?
The strategy which we are suggesting for this weekly expiry of November 3 is a bullish strategy known as Call Ladder, which involves buying one lot of Nifty 17,700 Call option at Rs 142 and selling of one lot each of 17,900 Call at Rs 62 and one of 18,100 Call at Rs 25 wherein high open interest concentration is observed. Call Ladder is an extension to the Bull Call Spread which helps in bringing down the total cost of the strategy. However, with benefit there is also risk involved as one more extra leg of out of the money Call is sold and any move above the sold leg can incur unlimited loss. The maximum profit of Rs 7,250 will be attained at 17,900 levels, while this strategy will start making loss above 18,250. The cost of the strategy involves outflow of Rs 2,750 which is the maximum loss if Nifty trades and remains below 17,750 levels at expiry, However, above 18,250, it’s advisable to exit the strategy in total to avoid unlimited losses. Break-even points of the strategy are 18,245 on the upside and 17,755 on the lower side.


What should investors do?
Charts and data suggest this market has become a sell on rally for positional traders but investors need to wait to figure out if this is a much larger degree of change in the trend. Implied volatility is high, so selling out of the money calls in some bounce back may turn out to be a rewarding strategy. Among notable spaces, the cement sector is doing well and buying in a falling market with high volumes has bullish implications.


What should investors do?
Traders are suggested to keep position light as the roller coaster ride could continue for few sessions till India VIX cools down. Investors can grab this opportunity to pick good quality stocks to accumulate for long-term portfolio including stocks of private and PSU banks, consumption, cement, capital goods and IT sectors. On immediate basis, one can go with bearish strategy with some more down-side by being with Bear Put Spread buying 17,700 put and selling 17,500 put by paying the premium of around 60 points to play the downside move or hedging towards 17,500 zones. Stock specific positive setup is there in McDowell, ABFRL, Ramco Cements, Titan, TVS Motor, SBI, Maruti, Grasim and Indigo.

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