Don’t squareoff short positions, says Angel Broking

Global sell-off, which was triggered by talks that S&P may downgrade other nations and companies post US downgrade, has also hit the Indian stock market adversely.

Speaking to CNBC-TV18s Udayan Mukherjee and Mitali Mukherjee, Siddharth Bhamre of Angel Broking said the market trend is downward and this is not a time to do bottom fishing. I wont suggest to square-off short positions so soon, advised Bhamre.

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: Most positions got built with the 4,700 Put yesterday. Is that the kind of target futures and options traders have on their minds?

A: Around 4,800 contracts were built in 4,700 Put options, giving a downward twist to the trend. Foreign institutional investors (FIIs) are selling in cash market. However, if interest rate starts moving down in such kind of market, then there would be a flip in the economy and you will see the growth numbers dropping. 

If you look at the market movement and interest rate movement of 2008 and 2011 from the statistical point of view, markets were correcting and interest rates were going up in the first half of calendar year of 2008. Similar trend is observed in 2011, where interest rate is increasing and the market has corrected.

In the second half of 2008, we saw both market and interest rate declining. So, we are likely to have similar kind of pattern of interest rates and markets for the second half of calendar year 2011. So, the intensity may not be too high.  However, it is very clear that the trend is downward and this is not a time to do bottom fishing instead of sticking to levels of 4,800 or 4,700.

Q: What is your advice for the bearish clients? If we start 200 point down on the Nifty which is likely, would you tell them to take profits once or should they keep the shorts open?

A: Very few clients will hold short positions, which were recommended somewhere around lower levels like 5,500. People have moved out of their 10% of clients in retail and they are likely to trade short. So, those clients who have gone short at higher levels have covered their short positions and hence, there are not many short positions from the retail front.

However, if at all there are some people who are carrying their short positions, then there is no hurry for them to cover their short positions because there should be some kind of meaningful trigger which would pull market again back to 5,200 levels after this gap down opening.

So, I wont suggest to square-off short positions so soon. In fact, if you are carrying the short positions and market opens gap down to 4,900-4,850, your implied volatility of Put is going to increase further and then probably you can sell 4,600 or 4,700 Put options against your short positions.

Also read: Markets may not shoot up after hitting bottom, says Jhunjhunwala