Nifty 50 (25,357) and Bank Nifty (51,938) appreciated by a considerable 2 per cent and 2.7 per cent, respectively, last week. Below is the analysis of futures and options data of both the indices.
Nifty 50
Nifty futures (September) (25,373) bounced off the 50-day moving average early last week. The chart hints that the bulls have regained traction and so, further rally from the current level is likely.
As the price rose last week, the cumulative Open Interest (OI) of Nifty futures also increased. It went up to 164 lakh contracts on September 13 versus 161 lakh contracts on September 6. A price rally along with an increase in OI indicates long build-up.
The options data, too, support the bullish bias. The Put Call Ratio of (PCR) of both weekly and monthly options are above 1. A ratio greater than 1 is because of the relatively higher number of put option selling when compared to calls. Traders sell puts when they are bullish.
We expect Nifty futures to rally above the nearest potential resistance at 25,500 and touch 25,800 in the near-term. Resistance above 25,800 is at 26,000.
But if the uptrend loses momentum resulting in Nifty futures falling from the current level, it can find support at 25,100. If this is breached, the next support is at 24,850. Note that a break below 24,850 can turn the outlook bearish.
Strategy: Buy Nifty futures now at 25,370 and accumulate if the price dips to 25,150. Place initial stop-loss at 24,800. When the contract rises above 25,600, revise the stop-loss to 25,300. Book profits at 25,800.
Instead of buying futures, traders can consider buying call options. We suggest buying an at-the-money (ATM) October monthly call option. Entry and exit prices for options can be based on corresponding Nifty futures’ price mentioned above.
Bank Nifty
Bank Nifty futures (September) (51,929), which saw selling pressure initially, found support at 50,320 and rebounded. The contract appreciated through the week and closed above both the 20- and 50-day moving averages. The chart also shows that the contract has made a higher high.
But unlike Nifty futures, Bank Nifty futures saw short covering as the cumulative OI dropped as the contract rallied.
As it stands, Bank Nifty futures exhibit good positive bias, and the probability of further upside is high. But there is a chance for the contract to see a minor correction, possibly to 51,500, before the next upswing.
On the upside, the nearest barrier is 52,800. A breakout of this can lift the contract to 53,600.
With respect to options, the weekly PCR is above 1 whereas for monthly options, it is less than 1. So, traders need to be cautious as we go into the final week of the current expiry. That said, one needs to watch this regularly as it can change the bias very quickly.
Strategy: Rather than going long at the current level, traders can wait for a dip to 51,500 for better risk-reward ratio. That is, buy with a stop-loss at 50,500 when Bank Nifty futures slip to 51,500.
After initiating the trade, when the contract rises above 52,000, alter the stop-loss to 50,800. On a rally to 52,500, tighten the stop-loss to 52,000. Exit at 52,800.
Alternatively, traders can consider buying at-the-money October month call options.
