Nifty may face stiff resistance around 5600

The market has taken a pause after the steep fall in the early part of the series and has been consolidating in the range of 5380-5500 for the past couple of trading session. The current series, which has seen a price erosion of 6.9% from the last expiry, is likely to end in the range of 5350-5450 with a negative bias. On the option front, the current month PCR is below one and the next month’s PCR is above one.

Moreover, India VIX has started to inch upwards, indicating there is some pain still left in the market. In the next series, we may see a minor relief rally as a lot of put writing was witnessed in 5200-strike price. Nifty is likely to face stiff resistance around 5600 and should take support around 5350. Failure to hold 5350 may take Nifty to 5200.

Banking and metals stocks which have been hammered in the current series are likely to see a good rollover and will fa6ce selling pressure on rise. However, stocks like DLF, HDIL, Ashok Leyland and Ranbaxy may see gains if Nifty holds 5350. The market is likely to remain in the broad range of 5300-5600. So one can initiate long butterfly, which can be formed by selling both 5400 call @ 118 and 5400 put@ 132 and buy 5200 put @ 59 and 5600 call @ 43.

The maximum risk in the strategy is Rs 52 and with maximum profit potential of Rs 148 if Nifty expires at 5400 in June. The lower breakeven is 5252 and the upper breakeven point is 5548. We advise to exit the strategy if Nifty breaks 5600 on the upside or 5200 on the downside.

-- Abhinay Jain, Head of Derivatives, Sharekhan