After a very long time, the January series of derivative contracts is going to end on a positive note and this will help call buyers eke out some gains. There is reason for this; the initial set of results for the December quarter has been good and by the time the January series of F&O contracts ends, not many players from the sectors that are expected to perform badly would have announced their numbers. So those numbers are likely to affect the February series, and this may result in some choppy movement over the next few sessions. Prices of put options for the February series are now quoting at very low levels and it would be worthwhile to still have some put options in the trading portfolio, though there is high probability that the money spent on buying these options may go waste. Still, put options are a necessary evil, and traders can’t really leave their companies at this stage.

As the market might correct in the first trading session of the week, an aggressive trader may buy put options at strike price 5,000 for the January series. This option is now quoting at Rs 26 and it may give decent returns over the next three sessions when profit booking brings down Nifty below the 5,000 mark. We are making an assumption that we might see a sharp decline in Nifty due to a decline in the RIL stock. However, in case the decline in RIL is countered by a short-covering bounce in banking stocks or stocks from any other sector, the index will end the January series around the same level as it is today, in which case the money spent on buying these options will go down the drain. So, this option should be bought only if banking stocks are also in corrective mode along with other index majors. Otherwise, any dip in the market should be utilised to close in-the-money call options, where the time value is extremely low.

For the February series, we would recommend buying of put options at strike price 4,900, which are quoting at Rs 66. Along with this, one can buy call options of February series at strike price 5,200, which are going for Rs 70.

We are suggesting the 5,200 strike price due to fact that Nifty faces strong resistance at 5,150 and any move above this level would take the index past the 5,200 mark, which will trigger a covering in call options at strike price 5,200. To part-finance the buying of these options, traders can sell extreme out-of-money call and put options for the March series, but these should be extreme out-of-money options where the probability of their becoming at-the-money calls is extremely low.

rajivnagpal@mydigitalfc.com