Nifty expected to get support at 5020 level

THE creation of positions in Nifty options indicates traders are expecting limited upside, but are not ruling out a sharper downside. Open interest in Nifty call options was 1.25 lakh shares while that in put options was 37.75 lakh shares on Friday, analysts said. This shows the pessimistic bias of traders towards the market. But analysts point out there is a strong support for the index at 5020, which is the 200-day simple moving average. Among stocks, SAIL has seen some call writing at higher levels. Though this means stock upsides could be capped, analysts are not ruling out the possibility of a sharp move before the June series expiry. Harish Rao suggests an options strategy that captures a rangebound Nifty and one that captures a volatile SAIL.
NIFTY
CMP: 5,119.35 Strategy: Long call butterfly Buy 1 June 5000 call @ 157 Rs 7,850 Sell 2 June 5100 calls @ 86.40 Rs 8,640 Buy 1 June 5200 call @ 35.35 Rs 1,767.50 Net premium paid (50* 19.55) Rs 977.50
This strategy involves limited risks, but will fetch only commensurate returns. The maximum profit is when the Nifty expires at 5100. This will be Rs 4,022.50 (50 * (100-19.55). The maximum loss will be limited to the extent of the net premium paid (Rs 977.50), which will occur when the Nifty goes below 5000 or above 5200 at expiration. At 5000 levels, all the options will expire worthless. Above 5200, the gain from two long calls will be neutralised by the selling of two 5100 calls.
SAIL
CMP: 196.30 Strategy: Long straddle Buy 1 June 200 call @ 4 Rs 5,400 Buy 1 June 200 put @ 6 Rs 8,100 Net premium paid (1350 * 10) Rs 13,500 This options strategy involves simultaneous purchase of at-the-money call & put options of the same strike price and expiration date. This is a limited-risk strategy as the maximum loss will be to the extent of the net premium paid (Rs 13,500). This will occur if the stock expires at the strike price (Rs 200). To profit from the strategy, the stock should move beyond 210 (200+(6+4)) on the upside or 190 (200-(6+4)) on the downside.
WHAT TO WATCH OUT FOR
INDIA
Results: Bimetal Bearings, Gokul Refoils, Lancor Holdings and Responsive Industries will declare quarterly & annual earnings on Monday.
WORLD
London: Office for Budget Responsibility (OBR) economic forecast. The newly-formed OBR will publish its first pre-budget forecasts for the economy and public finances on Monday.