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Nifty 50 (19,047) and Bank Nifty (42,782) slumped 2.5 per cent and 2.2 per cent respectively over the past week. There was some recovery on Friday after witnessing a fall on all previous sessions last week. But the chances of the bounce sustaining are slim. The futures and options (F&O) data, too, paint a bearish picture. Here’s an analysis.
Nifty 50
The November Nifty futures lost 2.6 per cent last week and it closed at 19,145 on Friday. There was considerable short build-up through last week – last Thursday, the contract closed at 18,973 versus preceding week’s close of 19,654. In the corresponding period, the cumulative Open Interest (OI) of Nifty futures ballooned to nearly 160 lakh contracts from 117.3 lakh contracts.
Although the OI dropped to 116.6 lakh contracts on Friday as the contract rallied, it was due to expiry of monthly contracts to a large extent. Broadly, the bearish bias exists which is substantiated by the price action of Nifty futures.
On the other hand, the Put Call Ratio (PCR) of the nearest weekly options stood at 0.8 on Friday. Ratio less than 1 shows relatively more call option selling compared with put options. Participants sell call options if they expect the underlying to fall. But note that PCR of November monthly contracts was recorded at 1.3. So, more put options have been sold, a bullish sign.
The above factors denote that the near-term trend, particularly for this week, remains negative. So, expect more fall in Nifty 50 and Nifty futures. But the recovery could extend a bit more before the next downswing.
From a trading perspective, traders can consider buying put options, preferably monthly contracts, or short Nifty futures.
According to the options chain, potential support is at 19,000 and 18,800. The immediate resistance levels can be 19,200 and 19,500.
Bank Nifty
The November expiry Bank Nifty futures was down 2.1 per cent last week as it closed at 43,100 on Friday. The OI movement was similar to Nifty futures – it shot up to 32.8 lakh contracts on Thursday as against 28.3 lakh contracts by the end of the preceding week before dropping to 24.9 lakh on Friday. The contract continues to show bearish inclination.
The PCR of nearest weekly and monthly contracts stood at 0.9 and 1 respectively. Hence, at the moment, participants have marginal bearish expectations this week and a hold neutral view for the following weeks.
Given the above factors, traders can go for bearish options strategies like buying put options or implement bear put spread. With respect to futures, we suggest waiting for a rise to 43,350 and then short the contract.
According to the options chain, possible support is at 42,500 and 42,000. Potential barriers are at 43,000 and 43,500.
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