VIX has to fall below 14 to get bulls grip in market, traders can go with Call Ladder Spread

August 12
02:29 2019

Chandan Taparia

The Nifty index witnessed a strong rebound from key support levels and closed positive on the weekly scale after a decline that was seen over the last four weeks. It respected the 10,800 zone, which is a key 61.80 percent retracement of entire up leg from the 10,004 to the 12,103 level.

It formed a Bullish Piercing kind of pattern on the weekly chart, while a small bodied candle on the daily scale. It has bottomed out near to major support, but it now needs to witness a follow-up buying interest by negating lower highs – lower lows on the weekly scale.

Now, it has to continue to hold above the 11,000 zone to extend its move towards 11,250, then 11,333 zone, while on the downside, supports are seen at the 10,950, then the 10,880 level.

India VIX moved up by 4.28 from 15.19 to 15.84 in the last week. Volatility inched higher to 17.82 at the beginning of the week, but remained stable in the last four sessions.

VIX has to cool down below 14 zones to achieve stability, and the Bulls’ grip on the market. On the Options front, Maximum Put OI is at 11,000 followed by 10,800 strike, while the maximum Call OI is at 11,500, followed by 11,000 strike. We have seen minor Call writing at 11,500, followed by 11,300 strike, while Put writing is seen at 11,100 followed by 10,800 strikes. Option data suggests a trading range in between the 10,800 to 11,300 zones.

The Bank Nifty has witnessed buying interest towards the 28,600 zone, and closed positive after the weakness of last four weeks. It formed a Bullish candle on the weekly and daily scale near to support zones, which suggests a short-term stability, and act to build the base after the recent sharp cut of more than 4,000 points. Now, it has to hold above the 28,000 zone to witness an up move towards 28,750 then 29,000 zones, while on the downside, supports are seen at 28,000 then 27,750 levels.

Stock specific positives include all FMCG stocks (Marico, Hindustan Unilever, Pidilite Industries, Dabur, Bata) Mcdowell, Kotak Mahindra Bank, HDFC Bank, Bajaj Finance while weakness in Tata steel, Axis Bank, Amara Raja Batterries, PSU and Small banks.

Traders can go with Call Ladder Spread with the view to hold the support of 10,950-11,000 zones and bounce back move towards 11,250-11,333 zones.

(The author is Associate Vice President – Analyst-Derivatives at Motilal Oswal Financial Services Limited.)

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