Nifty 50 (19,189) and Nifty Bank (44,747), defying the odds, well, the technical ones, rallied sharply and hit a new life-time high last week. The former appreciated 2.8 per cent, whereas the latter gained 2.6 per cent in the truncated week.

The fresh breakout appears strong, and the futures and options (F&O) data indicate bullish positioning by derivative participants. Therefore, we expect the rally to extend this week. Below is the analysis of F&O data.

Nifty 50

The Nifty 50 July futures posted a weekly gain of 2.5 per cent as it closed at 19,261 on Friday. Interestingly though, the cumulative Open Interest (OI) dropped to 110.2 lakh contracts on June 30 as against 117.8 lakh contracts on June 23. But notably, it was continuously increasing until Wednesday.

Therefore, Nifty futures saw fresh long build-up till mid-week and saw significant short covering on Friday. Yet, the overall bias is bullish.

The options chain of July 6 expiry contracts show that the Put Call Ratio (PCR) stands at 1.64. Also, the PCR of the July monthly contract stood at 1.34 on Friday. Thus, there has been considerably higher put options selling when compared to call options selling. 19000- and 19100-strike puts have very high OI outstanding. This means even if there is a decline, these levels are likely to limit the downside.

Traders can consider buying call options as the probability of an upward movement is high. Those with higher risk appetite can go long on Nifty futures. But one should be prepared for a possible temporary decline following last week’s sharp rally, which can be seen as a buying opportunity.

What the data say
Significant short covering in futures of both indices
Options PCR of Nifty 50 and Nifty Bank show bullishness
Underlying indices sees a strong breakout
Nifty Bank

The Nifty Bank July futures was up 2.3 per cent as it ended at 44,851 on Friday. Thus, the contract has broken out of a range, opening the door for further upswing. Like in Nifty futures, Nifty Bank futures too witnessed arrival of new long positions until Wednesday and saw huge covering of shorts on Friday.

So, on a weekly basis, there was short covering as cumulative OI of Nifty Bank futures stood at 27.7 lakh contracts on June 30 versus 28.7 lakh contracts on June 23. Nevertheless, the overall inclination is bullish.

The PCR of options expiring on July 6 stood at 1.46 on Friday, showing more put writing, a positive for the bulls. The 44500-strike put option has seen substantial selling, meaning this can be a strong support for the Nifty Bank.

Considering the overall bullishness, traders can buy call options or Nifty Bank futures according to the individual risk appetite.