Bank Nifty fell sharply on Monday ahead of the RBI policy announcement tomorrow. Banking stocks turned bearish as traders expect a rate hike.

Bank Nifty June futures contract had declined by 435 points to end at 26,215 on Monday. The underlying value of the contract closed at 26,257.55. Bank Nifty futures closed at a 42 point discount to the underlying value.

Call Option for the June 28 expiry

Among the call option chain, the in the money Bank Nifty Call 26,000 option was the actively traded one. The option price ended down 35 per cent at Rs 545 on Monday. However, open interest (OI) in the contract rose 7.50 per cent.

This confirms that traders have taken fresh positions in the contract following a sharp drop in the option price. It is an indication that with the addition of OI, Bank Nifty can decline below this call strike price in the current bearish trend.

Bank Nifty Call 26,500 option contract is currently an out of the money option that saw the maximum number of OI increase. OI in the contract has increased by 44 per cent whereas the option price fell 43 per cent to Rs 302.

Gradual accumulation of fresh positions in the contract indicates that the Bank Nifty may encounter resistance around 26,500 levels in case of an upside.

Put Option for the June 28 expiry

The underlying contract witnessed selling ahead of the RBI policy decision. On the put option chain, the in the money Bank Nifty Put 26,500 option contract saw the maximum addition of open interest on Monday.

The put option price soared 58 per cent to close at Rs 571.90. OI, too, has gone up by 18.75 per cent for this contract. The implied volatility was higher at 20 per cent indicating that the option price was quite expensive.

The out of the money Bank Nifty Put 25,900 contract saw significant interest in Monday’s trading session. This put option contract gained 92 per cent to Rs 343.40, while the OI rose 19.40 per cent. The option price has turned costlier with the implied volatility at 21 per cent.