F&O: Nifty likely to face resistance at 5100 level

Volatility has subsided substantially and India’s volatility index (VIX) dropped to 26% from 34%, providing the much-needed relief to the market.

The Nifty has retraced 50% of its fall from 5400 to 4800. If the downtrend has to continue, the Nifty may find it really hard to sustain above 5100. The growing build-up of call options at the 5100 strike indicates a stiff resistance at this level.

The turnaround, during the previous week, can not be considered as the start of a new bull trend, unless the Eurozone crisis is resolved.

However, the increasing build-up of ‘put’ options from 4800 to 5000 suggests good support for the Nifty on downsides. The Nifty may spend some time in the range of 4950-5120 in the coming sessions.

Nifty rollover in the May series has remained subdued in comparison to the previous F&O expiries, indicating lack of decisiveness towards the market direction.

However, stock futures have witnessed a healthy rollover. This suggests that select midcap stocks may see good momentum, if the Nifty trades in a range. Mid-cap stocks like India Cement, Balrampur Chini and GMR Infra may witness a good upside momentum. Metal stocks have witnessed short rollover and may continue to trade under selling pressure.



Nifty strategy

One can initiate a short position in Nifty June futures near 5065 along with formation of short position in 4900 and 5000 ‘put’ options with total premium inflow of 185. The diminishing volatility in the range-bound market and the downside move towards 4950 will benefit the strategy.

By Amit Gupta, Derivatives Strategist, ICICIdirect.