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Nifty 50 (22,378) and Bank Nifty (47,298) appreciated 0.7 per cent and 1 per cent respectively last week. The futures and options (F&O) data is broadly bullish for both indices. Here’s an analysis.
Nifty 50
The March Nifty futures gained 0.6 per cent last week as it closed at 22,507. On a weekly basis, there was a decline in the cumulative Open Interest (OI) of Nifty futures – it stood at 141.9 lakh contracts on March 2 versus 144.6 lakh contracts on February 23. A price increase along with a drop in OI is an indication of the shorts getting out.
On the other hand, the Put Call Ratio (PCR) of both weekly and monthly Nifty options stood at 1.3. A ratio greater than 1 is because there have been relatively higher numbers of put options selling. Participants usually sell put options when their expectations are bullish. The chart of Nifty futures also denotes a fresh breakout.
Overall, Nifty futures appear bullish. As per the weekly option chain, 22,800 and 23,000 are the nearest notable resistance levels since call options with these two strikes have significant OI outstanding. At the other end, the potential support band is between 22,200 and 22,000 as put options with strike prices between these two levels have seen a good amount of selling.
As it stands, Nifty futures is highly likely to hit 23,000 in the near term. Hence, we recommend traders to consider long positions. Alternatively, one can buy at-the-money (ATM) monthly Nifty call options. Another alternative is a bull call spread on Nifty. Based on the individual risk profile, traders can decide among the above-mentioned choices of strategies.
Bank Nifty
The March expiry Bank Nifty futures rallied 1 per cent over the past week as it ended at 47,665 on Saturday. As it happened, the cumulative OI of Bank Nifty futures rose – it went up to 36.1 lakh contracts on March 2 as against 31.4 lakh contracts on February 23.
A price rally accompanied by an increase in OI indicates long build-up. Thus, after two weeks of short covering, fresh longs arrived in Bank Nifty futures last week, a bullish sign.
That apart, the PCR of weekly Bank Nifty options stood at 1.4, a positive signal. However,, the PCR of monthly options was at 1, showing that the number of calls and puts sold were almost equal. Nevertheless, the weekly PCR staying above 1 is a welcome sign for the bulls.
Bank Nifty futures’ chart shows that it is now hovering around a resistance at 47,700, where a falling trendline coincides. But as per the weekly options chain, potential resistance levels are 48,000 and 49,000. Since 47,700 appears a considerable hurdle, a breakout of this can take the contract past 48,000. So, a move above 47,700 will most probably result in a quick rally to 49,000.
In case Bank Nifty futures fall off the resistance at 47,700, it can find support at 47,000 and 46,200. According to options data, the nearest support levels are at 47,000, 46,500 and 46,000. The support at 47,000 is a strong one and we expect this to arrest the fall.
While there are positive indications like long build-up in futures and options PCR of 1.4, risk-averse traders can wait for Bank Nifty futures to surpass 47,700 and then consider longs. Traders with higher risk appetite can consider buying at the current level. One can also buy ATM monthly call options as an alternative.
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