Be ready to take exposure to February series
The decline in value in put options right after the budget speech was a pointer to the market’s bullish bias, and living up to that hint, the Nifty stayed under the bulls’ control for the last many days.
While there is a higher probability of the market remaining under a bull grip for a longer time, traders have to remember that all bull markets have corrective and volatile phases that are enough to wipe out their profits if they are caught unawares.
This is especially important for traders who have higher exposure to individual stock futures than Nifty futures. For, even a 3 per cent correction in the Nifty, which is not uncommon, can bring about a more than 10 per cent correction in individual stocks futures.
So, howsoever bullish might be the market and the sentiment around look, it is advisable to have a hedge on long positions, even if that meant incurring apparently unnecessary cost.
We would continue with the covered call strategy on the Nifty and the theme of booking profit in out-of-the-money call options. Now, booking profit does not mean that the Nifty has peaked out. Since there are early signs of a consolidation, it is better to book profit in long positions of call options, because they lose time value with every passing day. Most traders do not book profit in call options in the hope that they would make mega bucks around the expiry of a contract. But their hopes are mostly dashed to the ground. So, as the Nifty comes close to its earlier peaks, it is better to have trailing stop loss even in call options.
Also, traders should be ready and nimble enough to take exposure to put options from the February series. The reason, some consolidation might take place and the only way to play that is to have some intraday exposure to put options. This trade should be done on a day the Nifty opens with a downward gap and the market breadth is also weak and remain so till mid-session.
After a decent run-up, the Bank Nifty is now ripe for some profit booking. In the Bank Nifty, profit-booking comes typically as a sharp decline, followed by a long broad range-bound move. So it is time to book some profit in Bank Nifty. Especially, traders who have long exposure to Bank Nifty futures should either hedge at this point and save the profit on the table.
But the case with individual stocks is different. We are going see a phase in which PSU banks with good balance sheet repair would attract more investor attention. This would mean that traders will have to shift their exposure to performing banking stocks. Traders should look at individual stocks and take exposure through covered call strategy or go long on stock futures and buy put options. A key strategy for all traders would be not to sell out-of-the-money options, both call and put, because volatile moves are still not far off, especially in the March series.
rajivnagpal@mydigitalfc.com
Columnist: 
Rajiv Nagpal