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03-02-2010, 06:20 AM #1NιѕнyGuest
Nifty may face resistance at 5100 level
[DOWN]As usual, the implied volatility (IV) of the Nifty options has dropped after the Union Budget. The 4900-Long Straddle cost has come down by
around Rs 75 to Rs 245, even though the Open Interest (OI) of the out-of-the-money Call and Put options are higher.
This indicates great expectations among investors of a probable one-sided movements after the resumption of trading
on Tuesday. It is quite interesting to see the sharp drop in implied volatility of 5100 and above out-of the-money Nifty Call options, compared with other strike prices, indicating a possible resistance for the Nifty at 5100. As long as Nifty out-of-the-money Call options are less volatile, it is advisable to create Long Call Ladder Strategy on the Nifty.
One can sell Nifty March 5100 Call and 5200 Call at Rs 50 and Rs 26, respectively, and should buy the far out-of-the-money Call of Nifty 5300 at around Rs 12.
If Nifty stays below 5164 on expiry, one can make profits. The maximum profit of Rs 3,200 can be gained if the Nifty closes at or below 5100 on expiry.
On the contrary, if it moves above 5164, one may incur unlimited loss. In the stock futures segment, Tata Motors is a good candidate for long. The stock has a short-term target of Rs 742-750 levels. The stock has firm support at Rs 680. ABB offers a good opportunity to take short positions.
The stock is weak below Rs 815 and is having a support at Rs 780 and Rs 755, respectively.