F&O Tracker: Nifty Likely to Trade in 8650-8280 Zone

By Hemant Nahata, India Infoline

Friday's rally on the Indian bourse lacked volume suggesting rally might be used for trimming long position rather than adding up of fresh longs.We believe, Nifty is likely to trade within a narrow range of 8650-8280 zone unless either of the levels are been taken out convincingly. FIIs long short index future position has reduced to 2.7x as against 4.3x seen in the previous week.

In fact FIIs have bought option worth 2500cr (primarily far month index put option) on last Wednesday, indicating a cautious stance. With currency likely to trade above 65 bouts of intraday volatility in the stock markets cannot be ruled out.

On option front, Nifty OI PCR currently stands at 0.87x after wild swings observed in the previous week, which caught traders wrong on couple of occasion.With maximum OI on Nifty placed at 8300 put and 8600 call for august month (which is going to expire in the next 8 trading session), we see an short iron butterfly a lucrative bet for the current month.

We thereby, suggest selling Nifty 8500 straddle with total inflow of ~175 points and hedging it buy buying a Nifty long strangle of 8400 put8600 call outflow of Rs 95 points, thereby the maximum risk is Rs20 and maximum gain is Rs80 if Nifty August expire at 8500 levels.