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Nifty 50 (19,435) snapped the five-week losing streak by producing a gain of 0.9 per cent for the week ended September 1. Bank Nifty (44,436), on the other hand, appreciated for the second week in a row and was up 0.5 per cent.
The above suggests that there could be light at the end of the tunnel for the indices, and the futures and options (F&O) data conforms to the same by giving us bullish cues. Below is an analysis of the derivatives data.
Nifty 50
The September expiry Nifty futures rallied 0.8 per cent last week and closed at 19,512 on Friday. As the price moved up, the cumulative Open Interest (OI) of Nifty futures on the NSE slumped to 103.5 lakh contracts on September 1 versus 136.2 lakh contracts on August 25. This indicates sharp short-covering.
While sellers in the futures segment appeared to make an exit en masse, the options data reveal that more put options were sold when compared with call options in the nearest weekly as well as September monthly contracts.
The Put Call Ratio (PCR) of September 7 and September 28 expiry stood at 1.2 and 1.4 respectively on Friday. Traders selling more put options mean that they do not expect the index and its futures to fall. Hence, the indication is bullish from the F&O segment.
Supporting the above positive signs, the chart shows that Nifty futures has a strong support band between 19,350 and 19,400, against which it rebounded last week. So, Nifty futures is more likely to build on this positive momentum and rise to 19,800. So, we suggest buying September monthly expiry call options (preferably at-the-money strikes) or go long on Nifty futures.
Bank Nifty
The September expiry Bank Nifty futures went up 0.3 per cent to end the week at 44,602. But unlike in Nifty futures, Bank Nifty futures underwent an increase in cumulative OI – it rose to 23.5 lakh contracts on September 1 as against 22.2 lakh contracts on August 25. So, there was a fresh long build-up hinting that the banking index is better positioned to appreciate than the benchmark Nifty 50.
While the PCR of the weekly expiry stood at 1.2, the same for the monthly expiry stood at 1 on Friday. So, indication from options for the near term is bullish, but there could be a fight for control between the bulls and the bears as the month progresses. That said, we expect that the result would be in favour of the bulls given the recent development.
The chart shows that Bank Nifty futures has considerable support at 44,250 and 44,000, which has been holding well for the past three weeks. We anticipate the index to build a rally on the back of these supports, which can lift the contract past the nearest resistance at 44,800 to touch 45,400 before the end of the week. Hence, traders can consider long positions on Bank Nifty futures or options (monthly contracts).
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