Nifty 50 (19,517) and Bank Nifty (44,880) fell for the second week in a row as the market sentiment remained weak. The derivatives data of both indices continue to exhibit bearishness and this means, we might see some more downside this week. Below is an analysis of futures and options (F&O) numbers.
Nifty 50
The August expiry Nifty futures was down 0.7 per cent last week as it closed at 19,576 on Friday. As the contract descended, the cumulative Open Interest (OI) of Nifty futures increased – it went up to 133 lakh contracts on August 4 versus 128.4 lakh contracts on July 28. Thus, more participants entered as the price declined, reflecting a bearish inclination on the index.
Options, on the other hand, hint that the intensity of the bears could be lowering as the Put Call Ratio (PCR) of the nearest weekly expiry stood at 0.9 on Friday. By the end of the preceding week, the PCR of weekly options was 0.6, which means selling of more call options when compared with puts. This week, they are more or less the same as the ratio stands near 1. However, we cannot assume a bullish trend reversal just by the factoring in options PCR.
Although Nifty futures has a support at 19,500, a breach of this can lead to another downswing in price. The option chain shows that 19,500 and 19,400 are the key supports as put options with these strikes have a large number of OIs. Similarly, the 19,600-call option has the highest OI, showing that it is a strong resistance. From a trading perspective, we would need more clarity to suggest fresh positions.
Bank Nifty
The August expiry Bank Nifty futures lost 1.5 per cent last week and ended at 45,002. But there has not been much change with respect to OI numbers. The cumulative OI of Bank Nifty futures stood at 20.4 lakh contracts on August 4 as against 20.1 lakh contracts on July 28.
Therefore, short build-up in Bank Nifty futures was not as prominent as in Nifty futures. This was because of considerable short covering on Friday. So, we cannot draw a conclusion based on futures data.
Coming to options, the PCR of the nearest expiry weekly options stood at nearly 0.8. Thus, a bearish bias can be seen from the positioning of options traders. The option chain shows that the index has resistance at 45,500 and 46,000. Similarly, the nearest support levels are at 44,700 and 44,500. Subsequent support is at 44,000.
The above factors show us that there is no definite bias and so, there is a lack of clarity in trend. So, we suggest staying away from taking trades at this juncture.