Nifty 50 (21,854) and Bank Nifty (45,971), despite a bearish chart set-up, appreciated last week. While the former gained 2.3 per cent, the latter went up 2.5 per cent. The futures and options (F&O) data look mixed for both indices. Below is an analysis of derivatives data.

Nifty 50

The February Nifty futures rallied 2.1 per cent as it closed at 21,951 on Friday. As the contract rallied, the cumulative Open Interest (OI) dropped – it went down to 132.6 lakh contracts on February 2 versus 180.8 lakh contracts on January 25.

A price rally accompanied by a decline in OI indicates short covering. While this is positive, there is no confirmation of a bullish trend reversal.

The Put Call Ratio (PCR) of the weekly expiry stood at nearly 0.9 on Friday. At the same time, the PCR of monthly options was at about 1.2. A ratio less than 1 is a bearish sign because of higher number of call option writing, whereas ratio greater than 1 means more number of put option selling, a positive sign. So here, the weekly and monthly options PCR look mixed.

As per the options chain, the price band between 21,500 and 21,700 is a potential support as put options with strikes between these levels have seen considerable selling. On the other hand, 22,000 and 22,200 are the nearest resistances since call options with these strikes have significant OI outstanding.

The chart of Nifty futures shows that it has closed above a barrier at 21,850. But Friday’s candlestick shows that there are sellers present between 22,000 and 22,200. Support can be spotted at 21,700 and 21,580.

Overall, there is no clarity with respect to the direction of the next price swing. Hence, traders can stay out for now.

Derivative outlook
Short covering on futures of both indices
Nifty option chains look mixed
Bank Nifty options indicate bearishness
Bank Nifty

The February expiry Bank Nifty futures advanced 2.1 per cent last week as it ended at 46,237 on Friday. As the contract rose, the cumulative OI tumbled to 31.4 lakh contracts on February 2 versus 48.8 lakh contracts on January 25. This shows covering of short positions.

The PCR of weekly and monthly options stood at 0.7 and 0.9 respectively. Unlike in Nifty, the option chains of Bank Nifty give a bearish bias as the ratios are less than 1, meaning participants have written more call options.

There is substantial OI outstanding in 46000-strike call and put options. So, this is a critical level for Bank Nifty and Bank Nifty futures. Apart from this, 45,500 and 45,000-puts have been sold considerably. These are potential supports. Likewise, 46,500 and 47,000 are possible resistance levels since these calls have been written significantly.

Bank Nifty future’s chart denotes that the price band of 46,800-47,000 is a hurdle. The contract should breach the resistance at 47,000 to change the trend upside. On the other hand, there are support levels at 46,000 and 45,000. So, broadly, the prevailing price action does not imply any trend. So, traders can refrain from taking fresh positions now.