Nifty 50 (19,310) and Bank Nifty (43,851) posted yet another weekly loss as they depreciated 0.6 per cent and 0.8 per cent respectively and witnessed a fourth consecutive week of decline. The price action remains bearish and the futures and options (F&O) data, too, reflect the same sentiment. Below is an analysis of derivatives data on both the indices.
Nifty 50
The August expiry Nifty futures lost 0.9 per cent and it ended at 19,332 on Friday. As the price of the futures dropped, the cumulative Open Interest (OI) increased. Overall, the market participants added nearly 3 lakh fresh contracts over the past week and it stood at 133.5 lakh contracts on Friday. A decline in price along with an increase in OI shows short build-up.
Exhibiting a similar bearish bias, the Put Call Ratio (PCR) of the nearest weekly options stood at 0.8 on Friday. This indicates selling of more call options versus put options and the participants seem to have positioned for further fall.
The option chain shows that 19400-strike call, with the highest OI, is a strong barrier. Until this level is breached, Nifty futures will trade with a bearish inclination. Similarly, 19200- and 19300-strike puts have significant OI and so, these can be potential support levels this week.
The weakness in the index indicates that traders can consider bearish options strategies like bear call/put spread for this week. One can also consider selling Nifty futures depending on the margin requirements and risk appetite at the individual level.
Bank Nifty
The August expiry Bank Nifty futures closed last week at 43,965, thereby losing 1.1 per cent. There was short build-up as the price drop was accompanied with an increase in cumulative OI of Bank Nifty futures. The cumulative OI increased to 24.6 lakh contracts on August 18 compared with 23.6 lakh contracts on August 11.
The PCR of the weekly options, at 0.75, shows that traders are not expecting a rally as they have sold more call options as against put contracts. As per the option chain, 44,000 and 44,300 are the potential resistance levels, as call options with these strikes have the highest OI. Applying the same logic, there is a support nearby at 43,800, as the put option with this strike has considerable OI. Below this, 43,500 can be a support.
Since the Bank Nifty futures has a support at 43,800, traders can wait for the breach of this level before initiating fresh short positions. Once this support is taken out, traders can short on Bank Nifty futures or implement bearish options strategies like bear call/put spread.