Nifty 50 (19,820) and Bank Nifty (45,156) appreciated 2 per cent and 1.6 per cent respectively last week, signifying a bullish trend reversal. The futures and options (F&O) data of these indices too fall in line with this sentiment, indicating a strong possibility of continued upward momentum. The derivatives data show that the likelihood of further rally is high. Here’s an analysis.

Nifty 50

Last week, the Nifty futures expiring in September showed a considerable 1.8 per cent rally, resulting in a closing value of 19,872 on Friday. This ascent was accompanied by a surge in the cumulative Open Interest (OI) of Nifty futures on the NSE, climbing from 103.5 lakh contracts on September 1 to 111 lakh contracts on September 8, signifying fresh long positions being established. The price action of the futures exhibiting higher highs further solidifies the indication of a bullish reversal.

In the options segment, a bullish signal emerges as more put options were sold compared with call options in both the nearest weekly and September monthly contracts. The Put Call Ratio (PCR) for the September 14 and September 28 expiries stood at 1.3 and 1.5, respectively, on Friday. This indicates that traders selling more put options anticipate a stable or rising index and futures market.

Analysing the options chain, the nearest support levels are identified at 19,700 and 19,600, while 20,000 represents the immediate notable resistance from the current level.

Given the overall bullish sentiment derived from Nifty derivatives, we recommend considering the purchase of September monthly expiry call options, preferably at-the-money strikes, or adopting a long position in Nifty futures.

Derivative market
Fresh long build-up in Nifty futures
Bank Nifty futures saw short covering
Options of both indices exhibit bullishness
Bank Nifty

The Bank Nifty futures with a September expiry displayed a 1.6 per cent gain, concluding the week at 45,320. However, in contrast to Nifty futures, Bank Nifty futures experienced a reduction in cumulative Open Interest (OI), falling to 23 lakh contracts on September 8 from 23.5 lakh contracts on September 1, signifying short covering activity.

While the Put Call Ratio (PCR) for the weekly expiry registered at 1.3, the monthly expiry PCR stood at 1 on Friday. These figures indicate a near-term bullish sentiment in options markets, although a tug of war between bulls and bears could ensue as the month progresses. Nevertheless, given the prevailing conditions, the expectation leans towards a favourable outcome for the bulls.

Chart analysis reveals that Bank Nifty futures have confirmed a double-bottom pattern, suggesting potential upside in the future. Consequently, 45,000 emerges as a robust support level, expected to provide significant backing to the bullish camp. Therefore, traders may contemplate initiating long positions in Bank Nifty futures or options with monthly contracts.

Related Topics