Nifty 50 (18,666) and Nifty Bank (43,623), which were largely flat for most part of last week, fell on Friday and posted a weekly loss of 0.8 and 0.7 per cent respectively. The price action has started indicating a potential weakness in the short term and so does the futures and options (F&O) data of both indices. Here, we discuss the possible direction the indices could take by looking at more derivatives data.

Nifty 50

The Nifty 50 June futures lost 1 per cent over the past week as it closed at 18,706 on Friday. There was a slight drop in cumulative Open Interest (OI) on a weekly basis as it stood at 117.8 lakh contracts on June 23 as against 118.2 lakh contracts on June 16. Thus, the change appears insignificant.

With respect to options, the Put Call Ratio (PCR) of contracts expiring on June 29 is at 0.81, showing more call selling compared to put selling. So, the participants are expecting a cap on the upside. As per the option chain, 18,800 could be a strong hurdle given that the call option of this strike price has the highest outstanding OI. Similarly, put options and their respective OI suggest that 18,500 and 18,600 are potential supports.

Considering the above factors, there is a bearish bias but there is a possibility of a sideways trend until the June contracts expire. So, traders can wait for Nifty 50 to breach either 18,800 or 18,500 before executing a trade. A break of either of these levels can hint at the next possible direction of move. Until then, one can consider iron condor options strategy that can benefit from a possible consolidation.

Rear view
Nifty 50 futures’ OI saw a marginal drop
Nifty Bank futures’ OI increased slightly
Options PCR shows bearishness in both indices
Nifty Bank

The Nifty Bank June futures was down 0.8 per cent last week as it ended at 43,672 on Friday. But unlike in Nifty, which saw a minor drop in cumulative OI, Nifty Bank saw a marginal increase in the same. Cumulative OI of Nifty Bank futures was at 28.7 lakh contracts on June 23 versus 27.7 lakh contracts on June 16. The change is insignificant.

That said, the options chain of June 29 expiry gives us a PCR of 0.84. So, in Nifty Bank too, traders have sold more call options than put options, showing a bearish bias. However, 43500-strike put, and 44000-strike call options have considerable outstanding OI. Also, the Nifty Bank futures has been oscillating within the 43,500-44,000 range of late.

Therefore, the index seems to be positioned to chart a sideways trend this week, at least till the expiry of June contracts. The iron condor options strategy can be relevant given the current scenario.

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