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nifty Wednesday’s trading started with a very timid one. As the underlying index was drifting quietly down, the futures started trading at a deep discount of around 10 points.
This was the last hour of trading which saw better volume and faster momentum. Amidst global uncertainties, the fall has brought the Nifty once again to the level of 5400. Even the participation looks a bit intimidated, as Nifty futures ended the day’s trading with over a million. shares In open interest Indication for the construction of hedges.
as far as stock futures As regards, we are very close to the highest open interest ever, with 195 crore shares in open interest. Around 70% of the stock is still trading with a premium, with an upward bias among participants. This will create little pressure on the market in case of any macro uncertainty.
Since we are almost halfway to expiry, it makes sense to continue with long positions, but with long puts as well so that losses are limited, yet all upside remains open.
On the options side, the Open Interest Put-Call Ratio of the Nifty August Series stands at 1:58, indicating a moderately bullish structure. Even the implied volatility element of options that imply risk perception remains very low. This indicates that we may not see any major downside as far as the end of August is concerned. With more than 10 million shares in the 5300 August put, Nifty may get support near the 5300 level.
We think that by buying 1 lot Nifty Aug 5400 PE and selling 2 lots of Nifty Aug 5300 PE, Nifty Bear Ratio spread for hedge trading long can be done.
If Nifty closes in this range then this strategy makes profit within the range of 5200 and 5400. Even if Nifty closes upwards above 5400, one can still have cash flow and no cost of hedging. The strategy has a loss below 5200, which we think will be good for the end of August.
(Bhavin Desai is Manager (Derivatives), Motilal Oswal Securities)
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