The Nifty active futures saw a nose-dive on Monday, with basis turning into discount of over 10 points and a spike in open interest hinting at new shorts entering into the system. The market retreated from its day's low of 5182, but recovered only partially moving sideways in the latter half of the day.
Open interest increased by 9 lakh units to 2.52 crore units. In line with our last week's expectation, IVs have started moving up with wild swing in the Nifty.
On Monday, IVs shot up to 23, but cooled off to around 20 levels on day's close. We believe IVs will move up further. This, coupled with continued unwinding of Puts at 5400 and 5300 strike, makes us believe that Put writers are not confident of any sustainable recovery and that this downtrend in the Nifty will continue in the near-term.
We see the Nifty taking support directly at 5180; while on the upside Nifty should face resistance at 5320. Overseas, US markets remained volatile during the past week while Dow closed the down by 0.5%. Eyes are now on US employment and 22-Jun FOMC meet. Back home we have weekly inflation data later during the week.
Strategy and Follow-up: We advise traders who had bought straddles at 5400 strike (this can be done by buying Call and Put at 5400 strike) to hold on to their positions. Though this spread would have become in-the-money now we believe this can fetch more profits as we expects IVs to move up further with continuation of a down-trend in Nifty for the near-term. This strategy will be prudent also for traders who intend to initiate fresh positions and do not want to bet on market direction.
Open interest increased by 9 lakh units to 2.52 crore units. In line with our last week's expectation, IVs have started moving up with wild swing in the Nifty.
On Monday, IVs shot up to 23, but cooled off to around 20 levels on day's close. We believe IVs will move up further. This, coupled with continued unwinding of Puts at 5400 and 5300 strike, makes us believe that Put writers are not confident of any sustainable recovery and that this downtrend in the Nifty will continue in the near-term.
We see the Nifty taking support directly at 5180; while on the upside Nifty should face resistance at 5320. Overseas, US markets remained volatile during the past week while Dow closed the down by 0.5%. Eyes are now on US employment and 22-Jun FOMC meet. Back home we have weekly inflation data later during the week.
Strategy and Follow-up: We advise traders who had bought straddles at 5400 strike (this can be done by buying Call and Put at 5400 strike) to hold on to their positions. Though this spread would have become in-the-money now we believe this can fetch more profits as we expects IVs to move up further with continuation of a down-trend in Nifty for the near-term. This strategy will be prudent also for traders who intend to initiate fresh positions and do not want to bet on market direction.
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