F&O Tracker: Upside appears limited at current prices

Nifty 50 (22,420) and Bank Nifty (48,201) rallied 1.2 per cent and 1.3 per cent respectively last week. Here, we analyse the futures and options data of both indices and give you recommendations for trade.

Nifty 50

Nifty futures (May expiry) (22,556) gained 1.3 per cent over the past week. On a weekly basis, there was a drop in the cumulative Open Interest (OI) – it decreased to 114.4 lakh contracts on April 26 versus 155.7 lakh contracts on April 19. This indicates covering of short positions that were created during the previous week.

The contract has crossed over the 22,500-mark and thus, the nearest resistance from here is at 22,750. Subsequent resistance is at 22,950. While Nifty futures will most likely hit 22,750, the probability of a rally to 22,950 is comparatively low.

If Nifty futures slip below 22,500, expect the downswing to be extended to the 22,200-22,250 support band. Support below 22,200 is at 22,000.

That said, the PCR of weekly options stood at 0.75 on Friday, indicating selling of more call options, a bearish sign. However, the PCR of May monthly options stood at 1.35, a bullish sign. So, Nifty futures might see a dip this week and could recover in the following weeks.

Strategy: We suggested buying May Nifty futures at 22,275 last week. Now that Nifty futures has moved above 22,500, the revised stop-loss would be at 22,300. Hold this trade, but tighten the stop-loss a little more to 22,400. Book profits at 22,750.

Traders who bought 22,500-call option (May monthly expiry) too can hold the trade. Exit this at the prevailing premium when Nifty futures reach 22,750 or falls to 22,400, whichever happens first.

Derivative outlook

Futures of both indices saw short covering

Option positioning shows a bearish bias

Retain the long on futures and call options

Bank Nifty

Bank Nifty futures (May expiry) (48,380) appreciated 1.1 per cent last week. Like in Nifty futures, the cumulative OI saw a dip. It declined to 19.7 lakh contracts on April 26 as against 23.7 lakh contracts on April 19. So, short covering occurred in Bank Nifty futures too.

The upswing has taken Bank Nifty futures above the 20-day moving average, a positive sign. The price action hints that the contract is likely to touch 49,200, its nearest resistance, this week.

Post this move, there might a correction, possibly to 48,000 or even to 47,000. On the other hand, if Bank Nifty futures manages to break out of 49,200, it can quickly rally to 50,000.

The PCR of weekly options of Bank Nifty was at 0.8, whereas that of monthly options stood at 1. So, there is an indication of price moderation. Nevertheless, we expect that to happen only after Bank Nifty futures touch 49,200.

Strategy: Last week, we recommended to initiate longs on Bank Nifty futures (May contract) at 47,830. As the contract has surpassed 48,200, the modified stop-loss would be at 47,500. Retain this trade, but tighten the stop-loss to 47,800. Liquidate the longs at 49,200.

Participants, who have, as an alternative, bought 48000-strike May monthly call option can also hold on to it. Exit this at the prevailing option premium when the futures hit 49,200 or 47,800, whichever occurs first.

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