Low volume, volatility signal lack of direction
Low volume, volatility and low implied volatility (IV) in the Nifty suggests lack of direction in the market.
By Alex Mathews
Low volume, volatility and low implied volatility (IV) in the Nifty suggests lack of direction in the market. Daily volumes have been on the lower side since the beginning of first week of January. The daily Nifty volatility has dropped from around 1.2% to around 0.9%. Nifty options’ IV is at the lower side of 15% compared to an average IV of 22-30%.
As there is no clear direction on the Nifty, one can create January long straddles by paying Rs 45 for 5300 Call and Rs 75 for 5300 Put. If the implied volatility improves from 15-22 to 30% near term, even if the Nifty remains flat, one can make a profit out of it. The position can also reward investors, if there is a sharp swing above 5420 or below 5180 before the expiry on January 28.
Among stock futures and options strategies, a covered Call in TCS is advisable . Buy one lot of TCS futures at around Rs 800 and sell 820 TCS call at Rs 10. There is a probability of uptrend in the stock. The IV of 820 Call at around 32 suggests further option creation.
One can buy Kotak Mahindra Bank at Rs 853 with a stoploss below 835 for a target of Rs 868 to 888. Kotak Bank has recorded 860 as its January high and movements above this can trigger further uptrend in this counter.
(Head-derivatives and technical research. Geojit BNP Paribas Financial Services)
Low volume, volatility and low implied volatility (IV) in the Nifty suggests lack of direction in the market. Daily volumes have been on the lower side since the beginning of first week of January. The daily Nifty volatility has dropped from around 1.2% to around 0.9%. Nifty options’ IV is at the lower side of 15% compared to an average IV of 22-30%.
As there is no clear direction on the Nifty, one can create January long straddles by paying Rs 45 for 5300 Call and Rs 75 for 5300 Put. If the implied volatility improves from 15-22 to 30% near term, even if the Nifty remains flat, one can make a profit out of it. The position can also reward investors, if there is a sharp swing above 5420 or below 5180 before the expiry on January 28.
Among stock futures and options strategies, a covered Call in TCS is advisable . Buy one lot of TCS futures at around Rs 800 and sell 820 TCS call at Rs 10. There is a probability of uptrend in the stock. The IV of 820 Call at around 32 suggests further option creation.
One can buy Kotak Mahindra Bank at Rs 853 with a stoploss below 835 for a target of Rs 868 to 888. Kotak Bank has recorded 860 as its January high and movements above this can trigger further uptrend in this counter.
(Head-derivatives and technical research. Geojit BNP Paribas Financial Services)
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