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F&O pointers: Open interest in Nifty Futures dropped along with fall in price on Friday.
This indicates that traders are nervous and do not want to carry over their positions. Option trading indicates that Nifty could face strong resistance at 6,000 and support at 5,800 and 5,700.
Trading pattern suggests that retail investors and brokers are bearish on Nifty even as foreign investors are building up long positions on the index. But on stock futures, FIIs remained bearish, though retail brokers and domestic mutual funds have taken bullish positions.
Volatility Index
The volatility index, though moderated a bit from its peak level, it is still holding at crucial level.
The index is currently hovering round 16 level. This suggests that still some scepticism is presence in the market.
Recommendation
Traders can buy either Nifty 6000 or 5500 December puts contract.
The latter closed at a premium of Rs 110.5 and the former at Rs 247. If Nifty falls sharply, then the premium of the put would start to rise.
If that happens on or around June, then the chance of premium going up sharply would be very high due to time value.
The maximum loss could be the premium paid.
Follow-up: Last week we had advised long strangle on Bank Nifty. Traders can hold it till expiry.
( Note: Feedback or queries (on positions) may be sent to blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)
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