Since last Friday, we had seen heavy buying by FIIs on front-line stocks, which in turn caused short-covering, especially at and around of 5400 levels.
Later on Monday, the Nifty opened with a lower bias on global cues, but once again got support at around 5400. Now, 5414 and 5400 will act as major support levels and the major resistance would be at 5600 and 5665 which can attain in the short term. On the option segment, the Nifty call option open interest has fallen in at-the-money and in-the-money call options which lead the put-call ratio to stabilise above 1.20 levels.
In previous weeks, the Nifty put-call ratio has fallen below 1.20 levels and even tested 0.47 levels, now the scenario has changed dramatically and the current ratio has lend support to bulls. But the major outlook still remains weak, because we are still far below the 200 DMA of 5752, and Dow Jones is also set to break the 200 DMA of 11776 in the short term. The rally which we are seeing is a bounce back and it can be short lived as the June expiry is nearing.
The major heavy weight stocks have participated in the recent bounceback, and the trend may continue for some more time even if there are rough patches of high inflation and high interest burden. The situation can be better capitalised by selling the Nifty and its call options in the July series at higher levels.
July short strangle is considered, and it can be created by selling 5700 Nifty call option and selling 5400 put option. Risk averse can exit from the position as the time values of both options have started to decay. Fresh short positions on Nifty futures can also be considered when the Nifty comes very close to 5665 levels with a strict a stoploss above 5690.
Long call options are advisable in TCS and Maruti; both these stocks are expected to move up due to low implied volatility of its options. Grasim, ACC and Bajaj Auto can witness profit-booking in the near term. Investors can create small short positions in these stocks in June futures segmen
