Nifty closed at 5592 with a gain of 32 points and the June future was quoting at a discount of three points. After closing the May expiry down by 6.5%, Nifty has been trading higher. It has moved up 3.3% in the past four days. Nifty has a strong resistance at 5640 (50-day SMA) and 5750 (200-day SMA).
The rise in the markets is broad-based, with all the sectors and stocks performing after expiry in the past four trading sessions. Banking, real estate and pharma sectors have outperformed while auto, capital goods and IT services have underperformed compared to Nifty. India VIX has also corrected to 16.7 from 20 levels.
The futures added nearly 12% in Nifty open interest (OI), while there is a gradual increase in puts OI from 5400 to 5200 levels, while calls OI has been in line with the market. In the Nifty June series, the highest call OI is at 5800 strike with 6.5 million shares and the highest put OI is at 5400 strike with 6.9.million shares.
Given the current 21 trading sessions to expiry, with the Nifty up by 3.3% in the first four days, IVs being very low, we would recommend buying options instead of selling options at the current IV. As the markets have bounced back from 5350 levels twice in the past three months, a breakout below 5350 will trigger a fall to 5200 levels. We recommend a long put of 5400 strike price to hedge your portfolio by paying a premium of 37.
Buy Tata Motors for a bull-call spread strategy at 1100 CE at 32 and sell 1150 CE at 16. The stock has corrected after results, it has strong multiple supports at 1050 levels, we would recommend a bull spread strategy by buying 1100 CE at 30 and selling 1150 CE at 15. The maximum holding period for the strategy will be 10 trading sessions.
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