Nifty 50 (22,514) and Bank Nifty (48,493) appreciated 0.8 per cent and 2.9 per cent respectively, and are hovering around life-time high levels. Below is an analysis of futures and options of both indices.

Nifty 50

Nifty futures (April expiry) (22,596) gained 0.5 per cent last week. But the price action shows that it was largely trading in a range through the week. It was oscillating between 22,450 and 22,650. Notably, the 20-day moving average coincided at 22,450, making it a good support. The next leg of trend depends on the direction of the break of the 22,450-22,650 range.

If the contract breaks out of 22,650, it can hit 23,000, a potential resistance, soon. Resistance above 23,000 is at 23,200. On the other hand, if Nifty futures slip below the support at 22,450, it may fall towards the support band of 22,180-22,250. Below this, 22,000 is a strong base.

The Put Call Ratio (PCR) of weekly expiry Nifty options is at 0.9, showing a slightly higher number of call option selling, a bearish indication. But the PCR of monthly options stood at nearly 1.2, where more puts were sold by traders, a positive sign. So, Nifty futures might continue to consolidate, with a bearish bias, for the next few sessions and then see a breakout of the above-mentioned range.

Strategy: Stay away for now. Buy Nifty futures with stop-loss at 22,475 when it breaks out of 22,650. Once the price hits 22,900, tighten the stop-loss to 22,800. Exit at 23,000. Alternatively, post a breakout, traders can buy a 22,700-call option (monthly expiry). Liquidate this at the prevailing premium when Nifty futures reach 23,000.

But if the contract breaches the support at 22,450, go short with stop-loss at 22,550. Book profits at 22,250. Alternatively, traders can consider buying April monthly expiry 22,400-put. Exit this when Nifty futures fall to 22,250.

Derivative outlook
Nifty futures trading in a range
Bank Nifty futures testing a resistance
Futures of both indices likely to rally
Bank Nifty

Bank Nifty futures (April expiry) outperformed Nifty futures as it rallied 2.3 per cent for the week and closed at 48,658. Mid-week, it bounced off the 20-day moving average support at 47,600.

The price action is clearly bullish. That said, Bank Nifty futures has a minor resistance at 48,800. So, we might witness a retracement from the current level, possibly to 48,300. But the contract is well placed to see a breakout, post which it can see a quick upswing to 50,000.

That said, in case Bank Nifty futures falls below 48,000, traders should turn cautious. Because a breach of 48,000 can lead to a fall to 47,500. Nevertheless, as it stands, this is an unlikely scenario.

The PCR of both weekly and monthly expiry of Bank Nifty options are above 1, a positive sign. The option chains show that 48,200 and 48,000 are key supports for Bank Nifty futures. Potential resistance levels are at 49,000 and 50,000.

Strategy: Go long on Bank Nifty futures if it surpasses the barrier at 48,800. Target and stop-loss can be at 50,000 and 48,200 respectively. Alternatively, traders can go long on the 49000-strike April monthly call option once Bank Nifty futures rises above 48,800. Exit at the prevailing option premium when the futures hit 50,000.

But if the Bank Nifty futures moderate, one can buy when it slips to 48,300. Place initial stop-loss at 47,700. When the contract moves above 48,800, modify the stop-loss to 48,200. Book profits at 50,000.

When Bank Nifty futures falls to 48,300, instead of buying futures, one can buy 48,500-call (April monthly expiry). Liquidate this trade at the going premium when the futures touch 50,000.