The Nifty 50 (17,957) and the Nifty Bank (42,371) produced a minor gain last week — the former was up 0.5 per cent and the latter was up 0.4 per cent. But seen from a broader perspective, there was no clear trend over the past week and going ahead, the probability of price movement in either direction looks almost equal. Let us now take a closer look at what futures and options data says.
Nifty 50
The January futures contract of Nifty 50 rose 0.4 per cent last week to close at 18,022, thereby reclaiming the 18,000-mark. However, note that the underlying index is still below 18,000. While the price managed to close above the preceding week’s close, there was a slight increase in the cumulative Open Interest (OI) of Nifty futures on the NSE — it increased to 137 lakh contracts on Friday versus 135.7 lakh contracts a week ago. This shows mild long build-up. However, note that the nearest expiry futures — the January expiry futures saw a drop in premium to 65 points on Friday compared to 89 points on January 6.
Also read: F&O Strategy: Buy Jubilant FoodWorks call
That said, the option chain of January 19 expiry gives us a Put Call Ratio (PCR) of 0.87. Ideally, this is a mild bearish indication. But since the price of call options rose towards the end of the week along with an increase in OI, it can be considered as a long build-up on Nifty call options, a positive indication.
Overall, the futures and options data show marginal bullishness.
17800- and 17900-strike put options have the highest outstanding OI — potential support levels. On the other hand, while 17900- and 18000-strike have the highest OI, resh longs have been coming in. Other than this, 1900-strike call, with considerable OI, can be a hurdle. That means, a clear breach of 18,000 can trigger a rally to 19,000.
Nifty Bank
The Nifty Bank January futures went up 0.3 per cent over the past week and closed at 42,483. However, unlike the Nifty futures, the Nifty Bank futures shed cumulative OI as price moved up, indicating short covering, which is again, good for the bulls. The cumulative OI dropped to 25.6 lakh contracts on Friday as against 27.1 lakh contracts by the end of the preceding week. Here as well, the premium at which the January futures trades over the spot index decreased to 112 points from 174 points over the past week.
Also read: F&O Query: Should you hold or exit Canara Bank put options?
Looking at the options data, the PCR of January expiry stands at 1.03 — the number of calls and puts sold are almost equal. But broadly speaking, there were long build-ups in call options whereas puts witnessed selling.
On the whole, short covering in futures and call option buying gives the index a bullish bias.
42500- and 43000-strike calls, with highest number of OIs, have seen fresh longs. Therefore, 44000-strike with third largest OI is a potential barrier for the index, should it rise from the current levels. The 42000-strike put option has the most number of outstanding OI, potentially offering support in case the index falls this week.
Also read: Mastering Derivatives: Impact of bonus shares on option contracts