The Nifty 50 (17,094) recorded a third consecutive weekly loss whereas the Nifty Bank (38,631) witnessed a loss for the second week in a row. While these are indications of the bears firming up their hold, the derivatives data denote that they are actually losing ground because, on Friday, there was considerable short covering in both the indices. Although this cannot be taken as an indication of a bullish reversal, those who have gone short should remain cautious.
Nifty 50: The cumulative Open Interest (OI) of Nifty futures on the NSE, which increased to 160.8 lakh contracts on Thursday, tumbled to 130 lakh contracts on Friday as Nifty 50 rallied, showing short covering. It stood at 141 lakh contracts a week ago. The Put Call Ratio (PCR) of options expiring on October 6 (nearest weekly) and October 27 (monthly contract) are at 1.1 and 1.2, respectively. This shows more Put option writing than Call selling, hinting that participants are expecting the index to form a base.
Nifty Bank: The cumulative OI of Nifty Bank futures too, on Thursday, rose to 28.9 lakh contracts. But then it dropped to 23.3 lakh contracts on Friday when the index appreciated, meaning shorts covering. It was at 27 lakh contracts by the end of preceding week. Unlike the Nifty 50, the PCR of options expiring on October 6 and 27 are inconsistent as it stands at 1.08 and 0.95, respectively.