After reeling under downward pressure recently, Nifty 50 (17,360) and Nifty Bank (40,609) went up last week. While Nifty 50 appreciated 2.4 per cent, Nifty Bank posted a gain of 3.1 per cent. The rally was largely due to short covering. So, although the derivatives data show positive inclination, fresh longs should come in to strengthen the uptrend.

Nifty 50

The April futures contract of Nifty 50 appreciated 2.3 per cent to close at 17,443. While price went up, the outstanding cumulative Open Interest (OI) of Nifty futures dropped to 135 lakh contracts on March 31 versus 169 lakh contracts on March 24 – a rally with a drop in OI show short covering last week.

The Put Call Ratio (PCR) of options expiring on April 6 also gives a sigh of relief as it stands at 1.3, which indicates that a greater number of put options are written compared with call options. Thus, participants are expecting the index not to fall. But on the other hand, the OIs in call options are concentrated around at-the-money (ATM) and few strikes above it. So, the upside might be limited.

Considering the futures and options data, we can expect a flat to a marginal gain for Nifty 50 this week. Hence, traders can consider bull call spread options strategy. This can be constructed by buying 17300-strike call and simultaneously selling 17500-strike call. Exit the strategy when Nifty 50 rallies past 17,500. One can also consider bull put spread.

Derivatives outlook
Shorts make an exit on Nifty 50 and Nifty Bank futures
PCR gives a bullish bias
The upside may be limited this week
Nifty Bank

The April Nifty Bank futures rose 3 per cent over the past week. As it happened, the cumulative OI of Nifty Bank futures fell to 50.3 lakh contracts on Friday compared with 57.3 lakh contracts by the end of the preceding week. This denotes covering of short positions.

The PCR of the nearest weekly options stood at 1.3 on Friday. Ratio greater than 1 indicates more put option selling compared with call options and that means, participants are expecting Nifty Bank to stay above the nearest supports at 40,500 and 40,000. Since the call option writing seems to be evenly spread, at least for the ATM and few strikes just above them, the Nifty Bank is likely to face less resistance than Nifty 50 while moving up.

Given the above factors, Nifty Bank could see a rally. While 41,000 can be a barrier, there are chances for the index to touch 42,000. But a potential sluggish Nifty 50 means Nifty Bank could also remain so. Traders can consider bull call spread, which can be initiated by buying 40800-strike call and simultaneously selling 41500-strike call. Exit the strategy when the index rallies above 41,500. Bull put spread can also be an alternative strategy.