Going by April F&O rollover data, analysts suggest a Strangle Spread

NEW DELHI: Rollover data from March series F&O expiry suggests private banks and IT stocks could prove risky for those having long positions in them, while the overall market move will likely remain volatile in the April series.

Marketwide rollover data stood at 92 per cent versus 90 per cent average rollover seen in the last three series, which is higher than averages. Stock futures rollovers stood at 93 per cent, which is in line to the average rollovers seen in the last three series.

“Private banks and IT stocks saw very strong rollovers with healthy roll cost, while pharma was on the sidelines and the auto sector saw bearish positioning. In case of any weakness, private banks and IT stocks will be hit first, as HNI and retail traders are heavily long on those names,” said Abhilash Pagaria of Edelweiss Securities.

Navneet Daga of YES Securities said large long unwinding has been seen in select heavyweights like Axis Bank and HDFC, while shorting pressure has been seen on HDFC Bank, SBI and IndusInd Bank.

“Mixed activity seen in oil marketing companies with HPCL and IndianOil losing OI (open interest) base sharply. ITC lost nearly 3.5 crore shares on an aggregate basis compared with last month amid strong short covering during the series,” Daga said.

Nifty numbers game
In the March series, Nifty corrected almost 5 per cent and now it is down 7.2 per cent from its all-time high. Interestingly though, the overall positioning in the derivatives market is very bullish, said analysts, led mainly by participation of HNI/retail investors as FPIs have stayed on the sidelines.

In the last couple of days, the tenor of news flows has been gloomier as one of the main pillars of equity rally, decline in Covid cases, got challenged. At the moment, India is going through the much-feared second wave of cases and this has led to FPIs taking cash off the table.

Nifty futures rollover stood at 82 per cent, which was higher than the three-series average rollovers of 77 per cent, but OI base has shrunk a bit.

“On the options front, maximum Put OI stood at 14,000 followed by 13,500 while maximum Call OI was seen at 15,000 followed by 16,000. Options data suggests an immediate trading range between 14,000 and 14,800 levels,” said Chandan Taparia, Derivative & Technical Analyst, Motilal Oswal Financial Services.

Large volatility is seen in the trading band between 14,300 and 14,800 levels on Nifty. However, decisive moves on either side are missing, thus analysts expect the trend to persist in the near term. Shorter weekly expiry, along with higher volumes auger well for selling options, Daga said. He believes investors should use a short Strangle Spread strategy on Nifty April series starting April 1 in two legs.

“Sell Puts at strike price 14,000 and sell a Call at strike price14,800, for which the combined premium would come to 98‐100 points. When the market moves sharply in either direction, the spread will widen and hence stop loss should be at 155 points on the spread. But if it trades in range remains as expected, the target should be 10 points on the spread,” Daga said.

“For the very near term, a small rebound till 14,650 level can’t be ruled out, as the advance-decline ratio on NSE has moved to pessimism levels and such levels tend to trigger relief rallies,” said Pagaria.