Nifty 50 (23,290) and Bank Nifty (49,803) gained 3.4 per cent and 1.7 per cent respectively last week despite facing unusually high volatility. Below is the analysis of futures and options (F&O) data of both indices.

Nifty 50

Nifty futures (June contract) (23,325) hit a record high of 23,844 last Monday, before witnessing a steep fall to 21,265. But then the contract recovered in the second half and posted a weekly gain of 2.7 per cent.

On a weekly basis, the cumulative Open Interest (OI) of Nifty futures decreased – it dropped to 146.3 lakh contracts on June 7 versus 157.7 lakh contracts on May 31. A price rally accompanied by a decline in OI denotes short-covering.

With respect to options, the Put Call Ratio (PCR) of weekly and monthly options stood at 1.1 on Friday. A ratio greater than 1 means selling of comparatively more put options than call options. Traders sell puts when they have bullish expectations. Broadly, the F&O data give Nifty futures a bullish inclination.

Coming to the chart, Nifty futures has closed above 23,150, a positive sign. Although there might be a correction from the current level, probably to 22,750, the broader trend is bullish and the price action hints at a rally. The contract has the potential to touch 24,000 in the short-term.

Strategy: Buy Nifty June futures now at around 23,325 and on a dip to 22,800. Place initial stop-loss at 22,580. When the contract rises to 23,600, alter the stop-loss to 23,400. On a rally to 23,800, tighten the stop-loss further to 23,600. Book profits at 24,000.

Instead of buying futures, one can consider buying call options as an alternative. We suggest 23,000-strike June monthly call option. Go long now and accumulate at prevailing price when Nifty futures dip to 22,800. Exit this option at the going rate, when Nifty futures hit 24,000.

Derivative outlook
Short covering in Nifty futures
Long build-up in Bank Nifty futures
Options PCR shows that Nifty 50 is more bullish
Bank Nifty

Bank Nifty futures (June expiry) (49,909) marked a fresh high of 51,486 before seeing a slump in price. Nevertheless, it recovered from its intraweek low of 46,185 and managed to end the week higher by 1.1 per cent compared to preceding week’s close.

The cumulative OI of Bank Nifty futures went up over the past week – it increased to 29.5 lakh contracts on June 7 as against 24.3 lakh contracts on May 31. A simultaneous increase in price and OI means fresh long build-up.

While the futures appear positive, it is not the case with options. The PCR of weekly options stood at 0.7, meaning selling of higher number of call options, a bearish sign. On the other hand, the PCR of monthly options stood at 1, thereby not showing a bias.

However, the chart of Bank Nifty futures is bullish. Although it has a resistance at 50,000, we expect the contract to get past this level and rise to 52,000 in the near term. A breakout of this can lift it to 52,500. But before the upswing, the contract is likely to dip to 49,000.

Strategy: Go long on Bank Nifty futures now at 49,900. Add longs if it softens to 49,000. Place stop-loss at 48,300. When the contract moves above 51,000, tighten the stop-loss to 49,500. Raise the stop-loss further to 50,000 when the contract hits 51,500. Liquidate the longs at 52,000.

Alternatively, one can buy Bank Nifty call options. We recommend buying the 49000-strike June monthly call option now. Accumulate at the prevailing price when Bank Nifty futures see a price drop to 49,000. Exit this call when Bank Nifty futures touch 52,000.

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