Nifty 50 (18,315) and Nifty Bank (43,794) appreciated last week by 1.4 and 2.7 per cent respectively. While the data hinted at a minor correction before a rally, both indices went up last week without a dip. Notably, most of the weekly gain in both indices was made on Monday itself. Nevertheless, the futures and options (F&O) data now shows signs of an extension of rally this week.
The Nifty 50 May futures contract (18,333) witnessed fresh long build-up last week — the contract gained 1.1 per cent along with an increase in cumulative Open Interest (OI) to 129.3 lakh contracts on May 12 as against 113.7 lakh contracts on May 5. Also, the support at 18,200 seem to be holding well as shown by the chart.
The positive inclination can also be seen in options. The Put Call Ratio (PCR) of the nearest weekly expiry options stood at 1.08 on Friday. Thus, a greater number of put options were sold compared with call options, which shows that participants believe that the contract has formed a base.
Looking at the option chain, 18200- and 18300-strike put options, with significant number of OI, are likely to be strong supports going ahead. On the other hand, 18500- and 18800-strike call suggests these prices are potential resistance levels.
Overall, the bias is bullish and traders can execute bullish option strategies like bull call/put spread. One can also consider going long on Nifty futures with proper entry and exit plan. We suggest 18,150 and 18,650 as the stop-loss and target respectively for futures long positions.
Contrary to our expectations, Nifty Bank outperformed Nifty 50. The May Nifty Bank futures gained 2.4 per cent to end the week at 43,757. As it rallied, the cumulative OI went up — it increased to 27.8 lakh contracts on May 12 versus 26.3 lakh contracts on May 5. This shows long build-up like in Nifty 50 futures though at a lower magnitude.
The options too indicate bullish inclination as the weekly options’ PCR stands at 1.3, which points out more put option writing. The option chain shows that 43000-put option has seen considerable selling and 43000-call option has witnessed good amount of buying — strong bullish signal. Going ahead, 43,000 is expected to be a solid support for the underlying index. Moreover, 44000-call too seem to be attracting buyers implying a rally beyond this level.
The above factors suggest more upside this week, potentially towards 45,000. Hence, participants looking for opportunities can implement bullish option strategies like bull call/put spread or buy Nifty Bank futures. Stop-loss for futures can be just below the support at 43,000 and the target can be at 45,000.