The FIIs’ return might hint that there can now be some buying interest from them as well as short covering in the derivatives markets.
In the previous weekly expiry, Nifty has seen a sharp short covering above the levels of 22,800, which is also a sort of double top. Now, above 22,800 levels, the directional uptrend has been confirmed for the near-term targets of 23,200 and thereafter 23,400.
On the lower side, 22,800 now remains a very strong support and until these levels are not broken, the short-term trend will continue to stay bullish.
The momentum indicator MACD has also turned bullish in the near term, which will be supportive of the current weekly up move.“On the Derivatives front, the Max pain is now seen at 22,900 levels, so that is one more support ahead of 22,800 levels. The PCR is trading at 1.07 levels, hence it is bullish. The maximum OI for both call and put is at 23,000 strike, hence above those levels there can be a swift up move of another 200 points. There has been a significant addition on the put side at the lower strikes as well which is well reflected in the PCR,” said Jay Thakkar, Vice President & Head of Derivatives and Quant Research, ICICI Securities.Highest outstanding OI30th May (weekly and monthly expiry)
Highest call OI: 23,000 (3,06,269), 23,100 (1,63,796), 23,200 (1,58,192)
Highest Put OI: 23.000 (3,27,1410), 22,900 (1,87,382), 22,800 (2,20,853)
The India VIX as well as Nifty IVs remain at elevated levels as there is a major event in upcoming days, so having a plain vanilla options strategy is not advisable. Hence, a bull call spread is recommended. With an expected short covering from the FIIs, the largecaps are likely to benefit the most, so that will help the Index to inch higher from the current levels, Thakkar added.
Bull Call Spread
A bull call spread consists of one long call with a lower strike price and one short call with a higher strike price. Both calls will have the same underlying stock and expiry. Such a spread is established for a net debit and the profits are earned when the underlying rises in price.
The profit in this strategy will be limited if the stock price rises above the strike price of the short call, and potential loss is limited if the stock price falls below the strike price of the long call.
Below is the payoff graph for strategy:
ETMarkets.com(Source: ICICI Securities)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
