The Nifty was down 1.2 per cent for the week, falling to an intra-week low of 5,791 on Thursday. Higher Consumer Price Inflation (CPI) raised concerns about the extent of rate cut by the central bank in its monetary policy review next week. CPI climbed 10.9 per cent in February from a year earlier, compared with 10.8 per cent in January. Turnover in the Nifty index declined to Rs 29,925 crore compared with Rs 30,235 crore last week and the total number of shares of Nifty constituents declined by 11 per cent to 65 crore.
Traders can consider initiating a bear call spread in options of Nifty March series. This option strategy can be set by selling Nifty 5,900 call option and by buying Nifty 6,000 call options. These options were trading at around Rs 60.5 and Rs 23.3 at the end of Friday session. Since it is a bear call spread there will be an initial inflow which in our case comes at around Rs 37.2 (Rs 60.5 minus Rs 23.3). This will also be the maximum profit from this strategy.
If the Nifty declines further, both the call options will be worthless and the net premium collected of Rs 37.2 can be retained.
If the Nifty is above 5,937 at the time of expiry this strategy will lose money. The maximum loss will be capped at Rs 62.8 (6000 minus 5900 minus 37.2).
In the options segment, for March call series, 6,000 call has the highest open interest (OI) positions (76.87 lakh contracts) followed by 6,100 call (67.14 lakh).
For February put series, Nifty 5,700 put has the highest OI (1.08 crore) followed by the Nifty 5,800 put (85.9 lakh).
Consistently increasing number of puts suggests heightened risk aversion and generally does not bode well for the market.
In the futures segment, Asian Paints open interest (weekly basis) increased by 81.5 per cent followed by Jubilant Foodworks (46.8 per cent), GAIL (37.8 per cent) and Rural Electric Corp (31 per cent).
OI for NHPC declined by 13.3 per cent followed by HDIL (13.1 per cent), Unitech (12.5 per cent), Sesa Goa (11.7 per cent) and Sun TV (11.5 per cent).
India VIX that measures the expected volatility in the Nifty, closed at 15.16 compared with 13.4 last week.