Market Update: Nifty opened strongly at 10800 levels and registered a high of 10840 but couldn't sustain the momentum and dropped to 10750 levels before closing the day at 10790 levels. Nifty today made a Doji candle. Doji candle signifies indecisiveness where open and close rate are similar and market makes a big low and high shadow (and real body is small).
10750 was a good resistance level which was crossed today and Nifty traded above this level though out the day. This definitely count as a positive but Nifty is not out of woods yet. Even after rallying up almost 450 points we still need confirmation that bull trend has resumed. Nifty took 6 days to fall at 10350 from 10965 levels and after 3 days it has retraced almost 75% of the fall. We need Nifty to reclaim 10965 in next two days to signal a start of a fresh upmove. Nifty has given one confirmation today by crossing 10750 successfully today however secondary confirmation would be to make a new high above 10840 tomorrow and finally crossing 10965 levels (in 5 days).
What is worrying me is that entire rise from Oct low of 10k levels has already consumed too much time. Right now we are in 7th week ( from Oct low) and still below 61.8% (fall from 11750 to 10K) of total retracement. If this was a bullish move we should ideally have been sitting at 11K levels by now. Slower retracements are usually sign of corrective moves.
Even though market is making big moves, its indecisive ( we are still at same levels we were 10-12 days back). Need to give few more days to Nifty to settle down before we take trading call. Global markets can play a crucial role going forward. Dow and S&P have already touched their respective Oct lows and even though the correlation between S&P and Nifty is not working presently there is always a risk of catching up.
Trading recommendations: Still no open position, there was a whiff of a trading opportunity around 3pm ( updated here) but it didn't materialize. No point in doing any sort of trade just yet. Sit patiently.
10750 was a good resistance level which was crossed today and Nifty traded above this level though out the day. This definitely count as a positive but Nifty is not out of woods yet. Even after rallying up almost 450 points we still need confirmation that bull trend has resumed. Nifty took 6 days to fall at 10350 from 10965 levels and after 3 days it has retraced almost 75% of the fall. We need Nifty to reclaim 10965 in next two days to signal a start of a fresh upmove. Nifty has given one confirmation today by crossing 10750 successfully today however secondary confirmation would be to make a new high above 10840 tomorrow and finally crossing 10965 levels (in 5 days).
What is worrying me is that entire rise from Oct low of 10k levels has already consumed too much time. Right now we are in 7th week ( from Oct low) and still below 61.8% (fall from 11750 to 10K) of total retracement. If this was a bullish move we should ideally have been sitting at 11K levels by now. Slower retracements are usually sign of corrective moves.
Even though market is making big moves, its indecisive ( we are still at same levels we were 10-12 days back). Need to give few more days to Nifty to settle down before we take trading call. Global markets can play a crucial role going forward. Dow and S&P have already touched their respective Oct lows and even though the correlation between S&P and Nifty is not working presently there is always a risk of catching up.
Trading recommendations: Still no open position, there was a whiff of a trading opportunity around 3pm ( updated here) but it didn't materialize. No point in doing any sort of trade just yet. Sit patiently.
I have a question not related to Nifty but in general.
ReplyDeleteIf i take opposite position in derivatives of different maturities (obviously it would had squared off if having same maturity) of same underlying. For example: NIFTY @11,000 long call expiring on 27 Dec and NIFTY @11,000 short call expiring on 28 Feb, then what would happen. as per my knowledge if NIFTY move let say by +100 then long call will also move +90 to +100 since it is near month contract however short call will move may be +30 to +40 so making (+90-30 = +60) points. same way if Nifty move -100 then loss of -60 points.
Does my analysis is right or there is some flaw in the assumptions.
Yes you are partially right. As you know prices of Puts and calls are determined by two factors a) VIX ( i.e volatility) and b) time remaining for expiry.In this case if both your calls (current month long and far month short) are 'in the money' calls then you would find both are moving almost at same pace. Price of next month call is determined by how much time is left.
ReplyDeleteTo understand it in easier way lets take current month example- assume you buy 10700 call for current month for 187 and sell next month call for 400. Now the next month call is available at a premium of 213 (400-187) now suppose Nifty rises by 100 points tomorrow and the 10700 call becomes 250. So price of next month call will become 250+211=461 ( original premium of 213 will reduce probably by 1-2 Rs because of one trading day is now reduced)so your profit will be current month = 250-187= 63 rs and loss ( 400-461) 61 net gain of 2 Rs only. for every short call your profit is directly linked with time remaining and more time nifty consumes the bettr it is for you. What can work in your favour and better strategy would be to buy 'in the money call' and sell 'out of money call' ( if you are expecting market to rise) its called 'bull call spread'. That way if Mkt rises you will make much more and yes then if Nifty moves 100 your in the money call will move 100 & out of money call will probably move 30 ( in that case you dont even have to go for different months just trade in same month as its much safer ( after you sell next month call and some big big event suddenly comes up in far month say election/brexit etc which was not known earlier then premium of next month call can shoot up big time causing you losses). So its safe to stick to current month always.
Hope I am able to answer your question, do let me know if i miss your point or you were trying to ask somehting else. Happy to reply
Thank you so much. You have explained it very well.
ReplyDelete