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Nifty 50 (25,236) and Bank Nifty (51,351) appreciated 1.7 per cent and 0.8 per cent respectively last week. Both indices are now above key price points, a positive indication. Here’s an analysis of futures and options data of both indices.
Nifty 50
Nifty futures (September) (25,377) advanced 1.6 per cent over the past week. The cumulative Open Interest (OI) of Nifty futures, too, went up – it increased to 151.1 lakh contracts on August 30 versus 137.2 lakh contracts on August 23.
A price rally along with an increase in OI is an indication of fresh long build-up.
Corroborating the positive bias, the Put Call Ratio of weekly and monthly options stood at 1.3 and 1.5 respectively. A ratio above 1 indicates higher put option selling, a positive signal.
In addition to the above, Nifty futures has comfortably closed above the 25,000-mark and also a hurdle at 25,200. While 25,600 is the nearest potential barrier, given the current momentum, the upside can be extended to 25,800.
The nearest support is at 25,000. Until this level holds, the bulls will have an upper hand. Support below 25,000 are at 24,750 and 24,500.
Strategy: Traders can buy Nifty futures now at 25,375 and add longs if the price dips to 25,200. Place initial stop-loss at 24,900. When the contract touches 25,600, raise the stop-loss to 25,400. Book profits at 25,800.
Alternatively, one can buy a September 25000-call option. Buy now at ₹555 and accumulate if the premium dips to ₹350. Place stop-loss at ₹250. When the option rises to ₹750, revise the stop-loss to ₹600. Exit at ₹920.
Bank Nifty
Bank Nifty futures (September) (51,663) gained 0.8 per cent last week. But the cumulative OI of Bank Nifty futures decreased. It stood at 25.8 lakh contracts on August 30 against 33.3 lakh contracts on August 23.
A rally in price accompanied by a decline in OI shows short covering. While this may not be a bullish signal, the chart shows some positive signs.
The price action indicates that the region between 51,000 and 51,200 is a good demand zone and Bank Nifty futures managed to close above this level. So, the bias has turned bullish.
However, it has been facing a hurdle at 51,650. Although the weekly close is above this level, the breakout is not decisive. If the bulls gain traction leading to a proper breakout, Bank Nifty futures can rise to 52,350 soon. Resistance above 52,350 is at 53,000.
On the other hand, if the contract slips below 51,000, it can extend the decline to 50,200.
Strategy: Buy Bank Nifty futures if it surpasses 51,750. Target and stop-loss can be 52,900 and 51,200 respectively. After initiating the trade, when the contract rises to 52,500, revise the stop-loss to 52,000.
But if the price falls from the current level of 51,663, go long at 51,250 with a stop-loss at 50,800. When the contract touches 51,750, revise the stop-loss to 51,200. Tighten the stop-loss further to 52,000 when the price touches 52,500. Book profits at 52,900.
Instead of buying futures, traders can consider going long on at-the-money monthly call options. Entry price, target and stop-loss for these can be based on the Bank Nifty futures levels as mentioned above.
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