Nifty 50 (24,768) and Bank Nifty (53,584) gained 0.4 per cent and 0.1 per cent respectively last week after witnessing higher-than-usual volatility on Friday. Nevertheless, India VIX (13.19) – the volatility index – shows that the spike is not so significant, and the volatility continues to remain lower. In fact, India VIX was down nearly 7 per cent last week. Here, we analyse futures and options data of both indices.
Nifty 50
Nifty futures (December) (24,831) was witnessing a sideways crawl until Thursday. However, it was very active on Friday. While there was a decline in the first couple of hours of trade, the contract recovered sharply in the second half of the session. Consequently, it posted a marginal weekly gain of 0.2 per cent.
There was a drop in outstanding cumulative Open Interest (OI) on Nifty futures on Friday. On a weekly basis, too, we can see a decrease. This hints that a part of the existing short positions in the system made an exit.
Supporting the positive inclination, the Put Call Ratio (PCR) of weekly and monthly options on Nifty stood above 1. A ratio greater than 1 means there have been relatively more put options writing (selling) when compared to calls.
The chart as well shows that Nifty futures retain the bullish bias, and it is very much on its way up to 25,250.
Only a break below the support at 24,000 can turn the outlook bearish. Until then, the bulls will be pulling the strings.
Strategy: Three weeks ago, we suggested buying Nifty futures at 24,250. Participants can retain this trade with the updated stop-loss at 24,200. When the contract rises past 25,000, alter the stop-loss to 24,500. Book profits at 25,250.
Traders who are holding the 24200-call (December), too, can retain the trade. Exit the option at the prevailing premium when the futures contract hits 25,250.
Bank Nifty
Bank Nifty futures (December) (53,626) was down by a marginal 0.1 per cent last week despite the underlying Bank Nifty index was slightly up. Yet, like Nifty futures, there was a considerable swing in price on both sides on Friday.
The cumulative OI saw a minor drop over the past week. Theoretically, a simultaneous decline in price and OI means long liquidation. Also, PCR of Bank Nifty options stood at 0.9 because of relatively more call option selling, a sign of weakness.
That said, the changes mentioned above are small and insignificant.
The chart shows that the bulls have not given away the control over to the bears. Particularly after defending the supports at 53,000 and 52,500 though trading below this level briefly. In fact, the pace at which the contract recovered post the fall on Friday shows how fiercely the bulls defended their position.
So, it is highly likely that Bank Nifty futures can break out of the immediate hurdle at 54,000 soon and rally towards 55,000 in the short term. A breach of 55,000 can take it to 58,000.
But if the contract falls and makes a daily close below 52,500, then the bulls might start losing ground. Notable support levels below 52,500 are 52,000 and 50,500.
Overall, the quick recovery in both indices on Friday is an indication that the bulls continue to have an upper hand over the bears.
Strategy: Buy Bank Nifty futures at 53,600 with a stop-loss at 52,800. Book profits at 55,000.
Alternatively, one can buy 53,500 December call option at ₹550. Target and stop-loss can be ₹100 and ₹1,500 respectively.
