How short covering is lifting index futures

Akhil Nallamuthu |BL Research Bureau | Updated on: Mar 19, 2022

For Nifty50, the levels 18,000 and 16,000 could act as a resistance and support, respectively. 

The Nifty 50 (17,287) and the Nifty Bank (36,428) extended the rally last week and moved past some important levels, which makes the ground favourable for the bulls. Thus, both indices have closed in the green for the second straight week. While the benchmark Nifty posted a gain of 3.95 per cent, Nifty Bank appreciated by 5.45 per cent.

The cumulative open interest (OI) of Nifty futures on the NSE fell to nearly 169 lakh contracts by the end of last week compared to 173 lakh contracts a week ago. Similarly, the cumulative OI of Nifty Bank futures declined to 59 lakh contracts from nearly 63 lakh contracts in the corresponding period. The rally along with the increase in OI indicate that there was considerable amount of short covering.

The Put-Call Ratio (PCR) of Nifty 50 nearest expiry weekly options has gone up to 1.09 by the end of last week as against 0.72 a week ago. Likewise, the PCR of Nifty Bank nearest expiry weekly options has increased to 0.81 from 0.62 in the corresponding period. This shows higher put option writing and that is a bullish sign.

Coming to the most active strikes among call and put options, 18,000-strike call (54,416 contracts) and 16,000-strike put (53,583 contracts) of Nifty 50 has the greatest number of outstanding OI. Thus, 18,000 and 16,000 can act as resistance and support respectively for Nifty 50, whereas 37,000-strike call (35,055 contracts) and 35,000-strike put (28,181) are the most active in Nifty Bank and these can be the key resistance and support respectively.

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Published on March 19, 2022
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