Nifty 50 (24,835) furthered by 1.2 per cent last week, whereas, despite Friday’s rally, Bank Nifty (51,296) was down 1.9 per cent. In line with this, the futures and options (F&O) data show that Nifty is bullish, whereas Bank Nifty is struggling to find its feet. Below is an analysis.

Nifty 50

Nifty futures (August expiry) rallied 1 per cent and closed at 24,915 on Friday. The support at 24,350 held well and aided the bulls in taking the contract higher, especially towards the end of the week.

Following the strong rally on Friday, the chart of Nifty futures indicates that there is more to the upside in the forthcoming sessions. The contract is expected to cross the 25,000-mark and touch 25,430, a potential resistance. Before this, 25,250 can be a hurdle but is expected to be invalidated.

For the trend to turn bearish, Nifty futures should close below 24,350 on a daily basis, which looks less likely at the moment.

Substantiating the positive inclination, the Put Call Ratio (PCR) of both weekly and monthly options are above 1. A ratio greater than 1 means a relatively higher number of put options selling compared with call options. Traders sell puts if they are bullish.

Also, the cumulative Open Interest (OI) of futures dropped, showing that a significant number of bears made an exit, particularly on Friday. Considering the above signs, traders can consider initiating fresh long positions.

Strategy: Buy Nifty futures (August) at 24,915 and add longs if the price dips to 24,600. Place stop-loss at 24,420. When the contract hits 25,250, revise the stop-loss upwards to 25,000. On a rally to 25,350, tighten the stop-loss further to 25,200. Liquidate the longs at 25,430.

For lower margin obligation, traders can buy call options instead of futures. We recommend buying the 25000-strike call of August monthly expiry now at ₹310. Add more if the price dips to ₹170. Place stop-loss at ₹90. When the premium reaches ₹500, revise the stop-loss to ₹300. Exit at ₹620.

Derivative outlook
Nifty futures signal resumption of rally
Bank Nifty futures see short build-up
Options data show varying sentiment
Bank Nifty

Bank Nifty futures (August) lost 1.8 per cent last week and it closed at 51,513 on Friday. The chart shows that the contract might see a bit more of a downside, possibly to 50,000, before witnessing a rally.

Supporting the current bearish bias, Bank Nifty futures saw fresh short build-up as the cumulative OI increased as the price declined. It increased to 32.5 lakh contracts on July 26 versus 23.8 lakh contracts on July 19.

Also, the PCR of Bank Nifty options stood below 1 on Friday, indicating selling of comparatively-greater call options, a bearish sign. But note that the long-term trend remains positive.

A fresh leg of upswing, after the potential fall to 50,000, can lift Bank Nifty futures to 54,000. Note that the price region between 54,000-55,000 can resist the bulls. Subsequent barrier is at 58,000. In case the contract falls below 50,000, the downtrend can extend to 47,500, a solid support.

Strategy: Given the prevailing conditions, stay out for now. Buy Bank Nifty futures with a stop-loss at 48,500 if its price dips to 50,000. When the contract touches 52,500, modify the stop-loss to 50,000. Raise the stop-loss further to 52,800 when the price hits 53,500. Exit at 54,000.

Alternatively, traders can consider the 50000-strike call (August monthly series), which closed at ₹1,865 last week. Buy when the premium dips to ₹900 and keep a stop-loss at ₹300. When the premium touches ₹2,500 after the trade is initiated, alter the stop-loss to ₹1,000. When the option price rallies to ₹3,800, move the stop-loss up to ₹2,500. Book profits at ₹4,300.

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