Nifty 50 (19,732) advanced 1.6 per cent last week and posted gains for the third consecutive week. On the other hand, Bank Nifty (43,584) was down 0.5 per cent for the week due to the sell-off on Friday. Below is an analysis of derivatives data.

Nifty 50

The November Nifty futures climbed 1.7 per cent to end the week at 19,807. Notably, the premium at which the futures trade versus the underlying Nifty 50 index increased to 75 points on November 17 versus 58 points on November 10. Generally, the premium tends to fall as we approach expiry. A rise in the same is a positive sign.

Besides, the cumulative Open Interest (OI) increased as Nifty futures accelerated higher. It stood at 125.4 lakh contracts on November 17 compared with 123.9 lakh contracts on November 10. A simultaneous increase in price and OI means long build-up, a bullish sign.

The Put Call Ratio (PCR) of the nearest weekly expiry options is now at 0.9, showing slightly greater call option selling versus put option selling. This is a bearish signal as participants sell calls if they expect the underlying to decline or to see a sideways trend.

19800- and 19900-strike calls have significant OI, hinting that these are potential resistance. On the other hand, 19700- and 19500-put have high OIs and thus could offer good support.

The price action of Nifty futures is bullish and shows potential to extend the rally to 20,000. But a rally beyond 20,000 this week is less likely. Nearest support as per the chart is 19,750 and 19,650. Subsequent support is at 19,530.

From a trading perspective, since there is a good chance for a rally to 20,000, traders can prefer buying plain-vanilla calls or implement a bull call spread. Exit these positions when the index hits 20,000. Risk-reward is not favourable to buy Nifty futures at the moment.

Derivative market
Nifty futures witness long build-ups
Bank Nifty futures saw long unwinding
Options positioning shows bearish bias
Bank Nifty

The November expiry Bank Nifty futures saw a sharp sell-off on Friday and closed at 43,715. This resulted in the contract posting a weekly loss of 0.5 per cent. The cumulative OI saw a decline over the last week – it was recorded at 26.5 lakh contracts on November 17 as against 29.2 lakh contracts on November 10. A simultaneous drop in price and OI indicates long unwinding.

The PCR of weekly options stood at 0.6 on Friday, showing that call options were sold nearly twice as much as put options, a bearish signal. There have been substantial call options selling between the strikes 43,700 and 44,000. So, this price region can be strong resistance. On the other hand, 43500- and 43000-put has considerable OIs. Hence, these price levels can act as support.

Bank Nifty futures’ chart shows that 43,600 is a support where the 20-day moving average currently lies. So, this is like the support of last resort for Bank Nifty futures. A breach of this level can trigger another leg of downtrend, possibly to 43,000 or even to 42,600.

So, if Bank Nifty futures slips below 43,600, traders can initiate shorts. Alternatively, one can buy put options, either as vanilla puts or execute a bear put spread strategy.