Nifty 50 (21,711) and Bank Nifty (48,159) witnessed a muted ending last week as they were down 0.1 per cent and 0.3 per cent, respectively. The dip in the first half was covered up in the second half leading to a flat ending. Nevertheless, the broader uptrend remains valid. Here, we analyse the futures and options (F&O) data to get a sense of the derivative market participants’ expectations.

Nifty 50

The January Nifty futures was down 0.4 per cent as it ended at 21,794. Over the past week, the cumulative Open Interest (OI) dropped – it fell to 132.3 lakh contracts on Friday compared with 142.5 lakh contracts by the end of the preceding week. This indicates long unwinding. Although this is not a bearish sign, the exit of some longs means a loss in upward momentum.

On the other hand, the option chain of weekly contracts of Nifty is giving a bearish inclination. The Put Call Ratio (PCR) of the nearest weekly expiry stands at 0.9, showing slightly higher number of call option selling. Again, this is not overtly bearish. There is a chance for the Nifty and Nifty futures to consolidate more.

As per the weekly option chain, 21700- and 21800-strike calls have considerable OIs outstanding, indicating that these are potential resistance levels. Because traders sell call options if they think the underlying is not likely to rally. Similarly, 21500- and 21000-put have the highest OI. So, these are strong support.

Noticeably, from the current level of Nifty, the strikes of put are farther than the call strikes sold. This implies that option participants’ expectations are tilted towards a correction.

Overall, as it stands, the futures show a possible consolidation whereas options hints at flat-to-moderate correction this week. We suggest traders to go for option spreads given the current scenario.

Derivative outlook
Long unwinding in futures of both indices
Option chain shows some bearishness
Charts indicate consolidation phase
Bank Nifty

The January expiry Bank Nifty futures fell 0.5 per cent last week as it ended at 48,388 on Friday. The cumulative OI decreased to 21.8 lakh contracts on January 5 versus 23.1 lakh contracts on December 29. A price fall and a decline in OI show long unwinding.

PCR of weekly options stood at 0.7, a bearish signal as there are more call options selling compared with puts. Also, option chain shows that 48200-, 48300- and 48500-strike calls have seen substantial selling. Therefore, the price band of 48,200-48,500 is a strong barrier.

On the other hand, the potential support levels are at 48,000 and 47,500 as the put option with these strikes have been sold considerably. 47,800 can offer some support too. Overall, the derivatives positioning appears bearish for the week.

However, the chart shows a sideways trend in Bank Nifty futures, and it is now around the middle of a range of 47,800-48,800. So, stay out until some clarity arises.