Nifty 50 (20,969) and Bank Nifty (47,262) surged 3.5 and 5.5 per cent respectively over the past week. The sentiment remains positive and the chances for further appreciation are high. Here, we look at the derivatives data to see how the participants have positioned themselves broadly.

Nifty 50

The December Nifty futures rose to end the week at 21,075, posting a gain of 3.4 per cent. A major part of it happened in the first two sessions of last week, whereas the contract largely remained sideways in the second half.

Nevertheless, along with a weekly gain, the cumulative Open Interest (OI) saw an increase – it went up to 133.2 lakh contracts on December 8 versus 108.7 lakh contracts on December 1. Simultaneous increase in price and OI indicates long build-up.

The option chain of weekly expiry shows that 20800- and 20900-strike put options have a significant number of OIs outstanding. Thus, these strikes are potential support levels. 21000- and 21500-call options have the highest OI among calls and so, these can be roadblocks for the bulls.

The chart shows that Nifty futures is now trading within 20,950 and 21,100. A breach of 21,100 can result in a rally towards 21,500. But if the contract slips below 20,950, it could see a corrective fall to 20,800. Post this move, the rally can resume.

Broadly the trend is bullish and so, traders can consider long positions for this week. But only after the underlying Nifty 50 rallies above 21,000. Once there is a breakout, one can buy either Nifty futures or at-the-money (ATM) monthly call options.

Derivative outlook
Nifty futures show long build-up
Bank Nifty futures see last-minute breakout
Options are broadly bullish on both indices
Bank Nifty

The December expiry Bank Nifty futures advanced 5.4 per cent last week as it closed at 47,500 on Friday. In the hourly chart, we can observe a breakout towards the end of Friday’s session, ending the week on a high. This is a bullish signal.

That said, on a weekly basis, there was not much change in cumulative OI. Although there was a slight increase until mid-week, it then dropped to end at 23.9 lakh contracts on December 8, nearly the same as on December 1.

The options, on the other hand, is giving Bank Nifty a positive bias. The PCR of weekly and monthly options stood at 1.3 and 1.2 respectively on Friday. A ratio greater than 1 denotes comparatively more put option selling than call options, a positive sign.

47000-put has the highest OI among the puts and so, 47,000 can act as a strong base. Below this, the potential support is at 46,800. Similarly, 47500-call has the highest OI among calls and this can be a barrier. 48,000 is the subsequent resistance.

While the futures and options data show that Bank Nifty is not as bullish as Nifty 50, the broader inclination is optimistic. Therefore, we suggest taking trades on the long side. Consider buying Nifty futures or ATM calls based on your risk appetite.

Related Topics