Nifty options data indicate return of Bulls on D-Street

Will the stock market bulls come back with a vengeance, ahead of the Union Budget on February 1? If one goes by the options trading data, then selling of ‘call’ options is at a five-month high just days ahead of January derivative expiry.

This indicates a bullish trend, data experts say. Nifty and Sensex have witnessed more than 3 per cent fall in the past three trading sessions.

Basically, calls are options contracts, the buying of which indicates that people are going long on the market and vice-versa.

As on January 25, net call options worth ₹43,287 crore have been ‘sold,’ which indicates that a majority of options traders were going short on the markets and there is a high chance of reversal since they will come to cover their positions.

“The historic study of this data shows that markets stage a sharp reversal, when selling of calls, which amounts to short-selling in the options, reaches a feverish pitch. This is what has happened after the massive rally in Sensex and Nifty in the past couple of months.

Aggressive short-selling

“Now traders have started short-selling aggressively and hence this week saw a sharp fall in the markets. But the short-selling is already reaching alarming levels, at least in the options segment and hence markets may stage a reversal and noticeably move up around Budget,” said Rohit Srivastava, founder and strategist, Indiacharts. Srivastava has churned the options data for this newspaper .

The Nifty index, the largest traded derivative contract, fell to 14,222 levels on January 18 and further to 14,260 on Monday.

During this time, the selling in call options rose above the puts for the Nifty index to reach ₹39,029 crore as on Friday and was even higher on Monday. Previous data (see table) show that the markets have risen by nearly 10 per cent within the next one month of call selling exceeding puts.