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Buy 1 lot of 9th Nov Nifty 19250 Call at 87-89; Sell 2 lot of 9th Nov 19500 Call at 13-14 Target: 19500. Time Frame: till expiry.
Rationale
Nifty recovered almost 1% after sharp declines in the penultimate week while the broader market fared better as midcap and smallcap segment gained more than 2% each. Positive global cues helped markets to recover despite continued selling pressure from foreign funds. Heavyweights remained largely laggard and restricted the gains of headline index. Going ahead, we expect the Nifty to respect 19000 levels and expect a short covering move towards 19600 in coming sessions.
From the data perspective, FIIs have increased their shorts in index futures and the net shorts are the highest seen since March at 1.75 lakh contracts. Historically we have seen a bout of covering from such aggressive short positions. Moreover, they have been net sellers in the cash segment for some time now. A pause in selling pressure may also trigger fresh recovery. Hence, we believe that the current move may extend towards 19600. On the other hand, a move below 19000 may trigger a fresh round of weakness in markets.
In the options segment, aggressive writing was seen at 19200 and OTM Call strikes for the coming week while Put writing remained relatively lower. Thus, closure of positions at ATM strikes may be considered as a first sign of covering in the market.
Considering results from heavyweights are almost over, the focus has shifted to midcap names. Also, despite ongoing volatile moves in the market, India VIX has closed the week below 11 levels. Only a move beyond 12 should be considered as a sign of fresh weakness in the market.
We recommend creating a Bull Call ratio spread wherein the breakeven of the strategy stands at 19688 levels.
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(The author is Derivative Research Head at ICICI Securities)
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