Markets may find a floor at 5200 level

The Indian market has underperformed most developed market in the past two months. Nifty has corrected by over 15% before rallying from around 5200, which can be a floor for the market for the next couple of months. Any failure to hold 5200 will open the next leg downwards and nifty may drift below 5000. On the higher side, 5800 will act as strong resistance zone as long as we don't see crude oil prices cooling off and some clarity on the political front.

There has been good amount of writing interest in call option beyond 5800-strike price, indicating a cap around 5800 in the short term. Nifty has support around 5350-5400 as there is a huge build-up in put option. Cumulative open interest in put option between 5200-5400-strike prices is around 2.30 crs and cumulative open interest in call is around 1.75 crs between 5500-5700.

We expect nifty to trade in the 5400-5700 range in this series with high intraday volatility. This month, VIX, which has contracted sharply to 22% after making a high of 28% just after the Budget day, may contract further. The PCR is hovering around 1.25, indicating the market will witness buying on declines.

One can initiate ratio call spread in bank nifty wherein one needs to buy 11000 call @ 300 and sell 11300 call @ 170 and 11500 @ 110. In this strategy, one can make maximum profit of 280 if bank nifty expires @ 11500.

This strategy is profitable in the broad range of 11020 to 11780. Below 11020 strategies has a maximum risk of 20 whereas beyond 11780 payoffs will be similar to short futures with unlimited risk. Reliance Industries , Tata Steel , and ICICI Bank can outperform from these levels and can be considered for long exposure as long as Nifty holds above 5400.