Nifty 50 (22,213) and Bank Nifty (46,812) advanced 0.8 per cent and 0.9 per cent respectively last week. While the positioning in options of both indices is similar, the futures data give a different picture. Below is an analysis.

Nifty 50

The February Nifty futures was up 0.6 per cent last week as it ended at 22,229 on Friday. As this happened, the cumulative Open Interest (OI) of Nifty futures rose – it increased to 144.6 lakh contracts on February 23 versus 134.2 lakh contracts on February 16. A price rise along with OI going up means long build-up, a bullish sign.

However, the Put Call Ratio (PCR) of February expiry options stood at nearly 0.9. This means relatively higher call option selling compared with puts. Traders sell call options when the expectation is bearish or a flat movement.

While the futures and options positioning appear different, the chart of Nifty futures shows that there is a strong resistance at 22,300. Coincidentally, 22300-strike call has been sold considerably. Hence, only a decisive breach of 22,300 will open the door for Nifty futures to establish another leg of rally.

As per the option chain, potential resistance above 22,300 are at 22,800 and 23,000. Similarly, 22,000 is a good support as the put option with this strike has significant OI outstanding. The chart of Nifty futures also shows that the price band of 21,930-22,000 is a good base. Below this price region the immediate support is 21,500.

Broadly, the next leg of trend depends on the level that Nifty futures breach first. A breach of 22,300 is a bullish sign, whereas a decline below 21,930 is a bearish indication. So, traders can now stay on the fence and initiate trade along the direction of the break of the 21,930-22,300 range.

Derivative outlook
Long build-up in Nifty futures
Short covering in Bank Nifty futures
Traders can stay out for now
Bank Nifty

The February expiry Bank Nifty futures rallied 0.7 per cent over the past week as it ended at 46,843 on Friday. During this time, the cumulative OI of Bank Nifty futures dropped – it was at 31.4 lakh contracts on February 23 versus 32 lakh contracts on February 16.

Thus, Bank Nifty futures has experienced short covering for the second consecutive week. That said, for the contract to build a sustainable rally, fresh longs should come in. But there are no such indications at the moment.

On the other hand, options show bearishness as the PCR of February options stood at 0.8 on Friday. A ratio less than 1 denotes more call option writing, a bearish sign. So, broadly, Bank Nifty futures is attempting for a breakout, but not getting enough push from the bulls.

This could be because of the important resistance band of 47,000-47,300, as the chart shows. A falling trendline barrier also lies within this price band, making it a strong hurdle to invalidate. Moreover, 47000-call has been sold substantially. That said, a breakout of such a strong hurdle can result in a sharp rally.

At the same time, there is a key support between 46,000 and 46,200, as per the price action. Also, 46000-put has considerable OI outstanding, meaning it is a potential support.

Overall, the Bank Nifty futures should breach either 47,300 or 46,000 for us to predict the next leg of trend with reasonable accuracy. Until then, participants are advised to avoid fresh trades.