Nifty likely to face resistance at 5300 level

Posted by blog master Tuesday, January 5, 2010

The Nifty rallied for the third consecutive day, touching a new 52-week high. Based on good global cues, the Nifty made a gap-up opening carrying

the positive basis.

The sustained upmove on the Nifty attracted over a million shares yet again in open interest. Although the movements in the Nifty are of not more than 50 bps, the additions in Open interest on the Nifty future side are negating the low-base effect with which we started January. Continuing premium on the Nifty indicates additions of more longs than shorts. Nifty futures may face minor resistance at 5300 levels, but would target 5410 levels ahead in the series.

The option composition for January series remains in a reasonably bullish mode with Open Interest Put Call Ratio at 1.42 for January Series. Nifty options indicate immediate support at 5200, while 5000 remains the heaviest build in Put creating an intermediate strong support.

As far as upside is concerned the move on the Nifty may be a little slow, given the amount of Call build-up on the higher side 5300-5500. Even at these higher levels, Nifty options are not pricing in risk of any big fall as indicated by lower Implied Volatility of mid-20%. So, we recommend initiating a Nifty bull Call spread — buying Nifty January 5200 CE, selling Nifty January 5300 CE and selling Nifty January 5400 CE. This strategy will be profitable at 5200-5500 on expiry.

Jitendra Panda

Sr VP-business associate

Motilal Oswal Financial

source-http://economictimes.indiatimes.com