F&O Tracker: A dip and then a rally

Nifty 50 (22,519) and Bank Nifty (48,565) ended the week flat due to the fall on Friday. We studied the derivatives data of both indices. Below is the analysis.

Nifty 50

Nifty futures (April expiry) (22,601) closed flat last week. While there was fresh long build-up till Thursday, the decline on Friday led to the exit of some longs. Although the cumulative Open Interest (OI) has gone up on a weekly basis, a flat close in price means there is no clear indication with respect to the direction.

The Put Call Ratio (PCR) of weekly and monthly options of Nifty stood at 0.7 and 0.9 respectively. A ratio less than 1 means relatively greater number of call option selling, a bearish signal, and vice-versa. Given the current PCR, Nifty might see a corrective decline this week before a potential recovery.

The chart of Nifty futures shows that it has slipped below the support at 22,650. So, we might see the downswing extending to 22,450 from the current level. If 22,450 is breached, it could decline to 22,200. But we expect Nifty futures to rebound from 22,450 and then rally back to 22,800.

Strategy: Stay on the side-lines. Buy Nifty futures with stop-loss at 22,350 when it dips to 22,450. When the price moves above 22,650, tighten the stop-loss to 22,500. Exit at 22,800. Alternatively, when Nifty futures moderate to 22,450, traders can buy a 22,400-call option (monthly expiry). Exit this at the prevailing premium when Nifty futures reach 22,800.

But if the contract breaches the support at 22,450, go short with stop-loss at 22,550. Book profits at 22,200. Instead of futures, one can consider buying April monthly expiry 22,400-put. Exit this when Nifty futures fall to 22,200.

Derivative outlook

Futures of both indices ended flat

Options hints a bearishness for this week

Traders can consider long on futures or calls

Bank Nifty

Bank Nifty futures (April expiry) (48,714), since the beginning of last week, has been moving in the sideways range of 48,650-49,100. Technically, the next leg of trend can be confirmed only based on the direction of the break of this price band.

But since the overall direction is up, even if the contract falls below 48,650, the downside could be limited. As per the chart, nearest support below 48,650 is at 48,300 and 48,000. In case Bank Nifty futures break out of 49,100, it can quickly rally to 50,000. Resistance above 50,000 are at 50,500 and 51,000.

There has not been much change with respect to the cumulative OI of futures over the past week. Since the contract also ended flat, the direction for this week appears uncertain as of now.

The PCR of weekly and monthly options stood at 0.7 and 1 respectively last week. So, like Nifty futures, Bank Nifty futures, too, might see a dip from the current level over the next few sessions and then witness a recovery.

Strategy: Go long on Bank Nifty futures once it dips to 48,300. Target and stop-loss can be at 51,000 and 47,600 respectively. Alternatively, traders can go long on the 48000-strike April monthly call option once Bank Nifty futures softens to 48,300. Exit at the prevailing option premium when the futures hit 51,000.

Alternatively, if Bank Nifty futures breaks out of 49,100 without seeing a dip, go long with stop-loss at 48,300. When the contract crosses over 50,000, raise the stop-loss to 49,000. Exit at 51,000.

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