Nifty likely to trade in a range

The Nifty moved in a narrow range and closed marginally above 4,800 on lack of buying interest in the futures and options (F&O) segment. Indecisiveness among participants was seen from the decline in trading volume in Nifty futures by over 34 per cent to 19.80 million shares.

Options traders seem unwilling to trade in the range-bound market as only eight trading sessions are left for the expiry of the February series. No wonder the volume in Nifty put and call options declined almost 20 per cent, indicating range-bound trading in the future.

However, there is a long straddle at 4,800 as put and call buyers expect an either side movement from this level. The long straddle is simultaneous purchase of a long call and a long put on the same underlying security, with both options having the same expiry and the strike price. Because the position includes both a long call and a long put, the investor in a straddle should have complete understanding of the risks and rewards associated with both long calls and long puts.

The 4,800 strike call and put options currently hold an open interest of six million shares each, mostly through buy-side trades carried out in the last couple of days. However, the Nifty is expected to move in a narrow range during the expiry period as the 4,700 strike put holds 6.20 million shares in open interest, indicating a strong support level. At the same time, resistance is seen above 4,900 and 5,000 strike call options hold 12.44 million shares in open interest.

Trading volumes in stocks futures saw fresh weakness in highly-traded stocks such as Bharti Airtel, Tata Steel and Reliance Industries. Bharti Airtel fell 8.77 per cent and saw short build-up of 3.61 million shares on concerns over the company’s acquisition plan. Tata Steel February futures ended the day in a Doji pattern and at a discount to the spot, though it added 531,744 shares in open interest, indicating short build-up.