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An eventful week brought significant action in the market as key indices, Nifty 50 (24,148) and Bank Nifty (51,561), experienced considerable volatility. However, on a weekly closing basis, one wouldn’t call last week as turbulent. Because, Nifty 50 was down 0.6 per cent and Bank Nifty only lost a marginal 0.2 per cent. Nevertheless, we look at the futures and options (F&O) data to understand what’s in store for the week ahead.
Nifty 50
Nifty futures (November) (24,220), after swinging along both directions through the week, posted a loss of 0.7 per cent. As it happened, the cumulative Open Interest (OI) of Nifty futures rose: it was up to 130.8 lakh contracts on November 8 versus 117.1 lakh contracts on November 1. Thus, Nifty futures saw a short build-up last week as OI increased as the price fell.
Supporting the bearish tone, the Put Call Ratio (PCR) of Nifty weekly options stood at nearly 0.70, which denotes greater number of call option writing (selling).
That said, despite the movement in both directions in the last week, Nifty futures remained between two key levels of 24,000 and 24,650. At this juncture, we cannot be sure in which direction Nifty futures will move out of the 24,000-24,650 range.
If the bear trend continues, leading to a breach of 24,000, the contract can see a quick decline to 23,000. But if the bulls manage to overpower the bears and lift Nifty futures above 24,650, it can potentially lead to a rally to 25,100.
Strategy: Given the uncertainty, we suggest traders staying out. Short Nifty futures with a stop-loss at 24,300 if it falls below 24,000. Book profits at 23,000.
On the other hand, if Nifty futures break out of 24,650, go long with a stop-loss at 24,475. Liquidate the longs at 25,100.
Bank Nifty
Bank Nifty futures (November) (51,789), unlike Nifty futures, was already charting a broad sideways trend. Despite last week’s volatility, the contract could not breach either of the boundaries of the range, which are 51,000 and 52,750. Within this, most of the time, it has been moving within 51,500-52,750 price band.
After all the movement through last week, Bank Nifty futures posted a minor loss of 0.3 per cent. Likewise, the change in outstanding cumulative OI, too, was less significant: it increased to 29.7 lakh contracts on November 8 from 28.7 lakh contracts on November 1.
From the aforementioned ranges, it is to be noted that the barrier at 52,750 is the key for the bulls to turn the trend in their favour. If they can crack this barrier, Bank Nifty futures can rally swiftly to touch 54,800.
But if bears regain traction and pull the contract below the support at 51,000, we will most likely witness another round of sell-off. This can potentially drag Bank Nifty futures to 50,000, which can even extend to 49,500.
Strategy: Refrain from taking fresh trades at this juncture. If Bank Nifty futures surpass the hurdle at 52,750, initiate buys with a stop-loss at 51,900. Exit at 54,800.
In case the contract invalidates the support at 51,000, go short with a stop-loss at 51,800. Book profits at 49,500.
As an alternative to short/long position on futures of both Nifty 50 and Bank Nifty, one can opt to buy put/call options respectively. We recommend choosing at-the-money strike of November expiry.
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