Nifty likely to scale new highs on strong fund flows

Betting in the options market indicates that the broader S&P CNX Nifty is poised to scale new highs soon, as global fund flows accelerate to get higher returns.

Maximum open interest in Call options has been in 6500 Calls, which has added more than 7.2 million units, also suggests that it could be a resistance level. The Nifty’s all-time high was 6357.10 on January 8, 2008.

“We expect the Nifty to trade in the range of 6200-6450 in the short term, with futures maintaining a premium of 15-20 points consistently ,” said Manoj Murlidharan, AVP-derivatives , IIFL PReMIA.

Trading has been in the range of the 6,000-6200 level and may move up even as those sceptical of sharp gains raise their bets. Over 4.5 million units in open interest were built in the past one week at 6300 Put options. This is despite options concentration in Puts continues to be highest at 6000 levels, adding around 7.3 million units in open interest.

“On Tuesday, 6300 Put options added more than 1.59 million units in open interest, which is reasonable enough to suggest that the trading range is expected to move higher ,” said Shshank Mehta, derivatives strategist, Nirmal Bang. If the Nifty manages to breach 6325 on the upside, 6300 will act as a very strong support zone, he said.

Foreign institutional investors have been buying options-based hedging in at-the-money Puts (equal to current market price) to prevent losses in their physical holdings of Nifty constituents.

Analysts say that this strategy is expected to give handsome returns to institutional investors as the delta of 6300 Put is currently around 0.7. This indicates that for every 100-point fall in the Nifty, the premium of the options will increase by 70 points.

Implied volatilities are expected to decline in the absence of any major significant development. The India–VIX , a traders measure of immediate volatility, closed at 18.75%, down 4.39% from a day earlier. It has been moving in lower end of the range at 19-23 .