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Nifty 50 (21,783) and Bank Nifty (45,635), after witnessing a volatile week, ended up posting a marginal loss. While the former lost 0.3 per cent, the latter was down 0.7 per cent. Below is the analysis of the futures and options data of both indices.
Nifty 50
The February Nifty futures dropped 0.5 per cent last week as it closed at 21,843 on Friday. Although the cumulative Open Interest (OI) shows that there were fresh shorts initiated till Thursday, they seem to have been unwound.
Consequently, on a weekly basis, there is no significant change in OI as it stood at 132.1 lakh contracts on February 9 versus 132.6 lakh contracts on February 2. So, the positioning in Nifty futures does not give a clear bias.
The Put Call Ratio (PCR) of weekly and monthly options of Nifty stood at 0.8 and 1.2 respectively. A ratio less than 1 is bearish since more call options have been sold compared with put options. The opposite is true when the ratio is greater than 1. So, we can assume that Nifty might stay weak this week and could see a recovery in the second half of February.
As per the weekly option chain, 22,000 and 22,200 are the potential resistance levels since call options with these strike prices have significant outstanding OI. On the other hand, 21,700 can be a minor support and 21,500 is a notable base since put options with these strikes are drawing good interest from traders.
Nifty futures chart indicates that 21,800 is a support where the 20-day moving average coincides. However, the price action shows a negative tilt. Also, the option positioning seems to be bearish for this week. Considering these factors, we suggest traders to initiate bearish trades once the support at 21,800 is decisively breached.
Based on the individual’s risk profile, one can choose between shorting Nifty futures, buying vanilla puts and executing bear put spreads.
Bank Nifty
The February expiry Bank Nifty futures declined 0.7 per cent over the past week as it ended at 45,900 on Friday. Along with the weekly drop in price, the cumulative OI increased – it went up to 34.4 lakh contracts on February 9 as against 31.4 lakh contracts on February 2.
Even though some short positions were covered on Friday, the futures data on a weekly basis show short build-up as the price has dropped and OI has gone up simultaneously.
The PCR of both weekly and monthly options stood at 0.9, showing relatively higher call option selling, a bearish sign. Comparatively, Bank Nifty appears weaker than the benchmark Nifty 50.
According to the weekly option chain of Bank Nifty, 46,000 is a significant barrier as 46000-call has a little over 2.7 lakh OI outstanding, which is an above average number. Above this, 46,500 is a potential resistance as 46500-call has about 1.2 lakh OI outstanding. Similarly, 45,500 and 45,000 can offer support since put options with these two strikes have the highest OI.
The chart of Bank Nifty futures shows that it is now trading in a range of 45,000-47,000. Technically, only a breach of this price band will give us an indication about the next leg of trend. Within this, the contract has a resistance at 46,400.
That said, since derivatives data gives the index a bearish bias, traders can short Bank Nifty futures if it rallies to 46,400 and 47,000. Alternatively, one can consider buying at-the-money vanilla put options.
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