Nifty 50 (19,266) ended last week with a minor loss of 0.2 per cent, whereas Bank Nifty (44,231) appreciated 0.9 per cent. This trend – the Nifty 50 weaker than the Bank Nifty – can be seen in the derivatives data too. While the options data of both indices paint a bearish picture, Bank Nifty appears relatively more neutral when we consider both futures and options (F&O) data together. Here is an analysis.
The August expiry Nifty futures closed lower at 19,250 on Friday versus the previous week’s close of 19,332, thus losing 0.4 per cent. As the price of the contract dropped, the cumulative Open Interest (OI) of Nifty futures increased – it went up to 136.2 lakh contracts on August 25 as against 133.5 lakh contracts on August 18. Thus, futures has seen a short build-up.
The options chain, too, reflects a similar sentiment. The Put Call Ratio (PCR) of the August expiry options stood at 0.7 on Friday. This is because of relative higher call selling compared with put selling. Traders generally sell call options when their expectation is sideways or bearish.
The call options with strike price of 19,300 and 19,500 have significant OI, showing that these are strong barriers that the index is likely to face. Similarly, looking at put options, the potential support levels are 19,200 and 19,000.
Broadly the trend is bearish and this is further supported by the breach of the support at 19,300 by Nifty futures last week. Hence, for this week, traders can consider bearish option strategies like bear call/put spread on Nifty. One might also consider going short on Nifty futures.
The August expiry Bank Nifty futures closed at 44,223 on Friday and thus posted a gain of 0.6 per cent for the last week. As this occurred, the cumulative OI of Bank Nifty futures saw a decline – it decreased to 22.2 lakh contracts on August 25 versus 24.6 lakh contracts on August 18. A price rally accompanied by a drop in OI denotes short covering. Although this does not guarantee a bullish trend reversal, the sellers seem to be losing traction.
That said, the option chain shows a bearish bias as the PCR of the August expiry options stood at 0.8 on Friday. A value less than 1 indicates more call writing and consequently, the participants do not expect a rally if not a fall. That said, according to option chain of August series, 44,000 and 45,000 are the nearest notable support and resistance level respectively as 44000-put and 45000-call have substantial OI.
Overall, the data do not give us a clear direction and the price action of the Bank Nifty futures too indicate a similar situation. Hence, traders can avoid taking trades in Bank Nifty futures and options for now.