F&O Tracker: Data hints at a blip before next upswing

Nifty 50 (19,332) and Nifty Bank (44,925) posted a gain last week despite a fall on Friday. There is a loss in upward momentum as indicated by the charts.

However, the broader bull trend remains intact. So, should the downswing extend from the current level, it is likely to be a corrective one rather than a bearish reversal.

• Also Read: F&O Tracker: Bulls come back in style

Here, we look at the futures and options (F&O) data and see what the derivative market participants’ expectations are.

Nifty 50

The Nifty 50 July futures was up 0.7 per cent last week as it ended at 19,399 versus previous week’s close of 19,261. As the contract appreciated, there was an increase in the cumulative Open Interest (OI) of Nifty futures – to nearly 120 lakh contracts on July 7 from 110.2 lakh contracts on June 30. An increase in both price and OI means long build-up.

• Also Read: F&O Tracker: Nifty 50’s F&O data hints at rally

The July monthly options retain the positive inclination as the Put Call Ratio (PCR) stands at 1.34, indicating more put option selling, a bullish sign. However, the PCR of the nearest weekly expiry stands at 0.68. So, here, call option writing has been on the higher side, hinting at a cap on the upside for this week.

Considering the above factors, we can assume that the trend is still bullish. But going ahead, as per F&O data above, Nifty futures could either rebound from the current level of 19,400, a support, or it could see a minor decline, possibly to 19,200, and then start moving northwards.

• Also Read: F&O Tracker: Options data shows bearishness

Traders can take longs, be it in call options or futures, but split the entry into two legs – one at the current level and the next when Nifty futures dip to 19,200.

Derivatives outlook

Nifty futures could test the support at 19,200

Nifty Bank futures might drop to 44,600

But broader trend is bullish and so, expect a swift recovery

Nifty Bank

The Nifty Bank July futures appreciated 0.4 per cent and closed the week at 45,030 versus preceding week’s close of 44,851. As it occurred, the cumulative OI of Nifty Bank futures shot up to nearly 31 lakh contracts on July 7 compared with 27.7 lakh contracts on June 30. Thus, long build-up was witnessed in Nifty bank futures as well.

With respect to July monthly options, the PCR stood at 1.04 on Friday. Thus, the quantity of call and put options sold is almost the same, hinting at indecisiveness among F&O traders. Nevertheless, the PCR of July 13 weekly expiry options stood at 0.68, indicating more call option selling. This gives a temporary bearish inclination.

• Also Read: F&O Tracker: Indices could consolidate with bearish bias

Besides, the hourly chart of Nifty Bank futures suggest a formation of a head and shoulder pattern which hints at a fall to 44,600 – a support. So, Nifty Bank is expected to see a decline to 44,600 and then resume the upward journey. Most probably, the rally could begin after the July 13 expiry.

Hence, traders can stay on the fence and go long on Nifty Bank futures or buy call options once the price of Nifty Bank futures decline to 44,600.