Nifty 50 (18,534) ended last week with a minor gain of 0.2 per cent, whereas Nifty Bank (43,938) was down 0.2 per cent. We could observe some short covering in Nifty 50 and mild long build-up in Nifty Bank futures over the past week. Below is an analysis of futures and options (F&O) data of both indices.
Nifty 50
The Nifty 50 June futures closed at 18,636 last week, producing a gain of 0.3 per cent. But the cumulative Open Interest (OI) of Nifty futures dropped slightly to 100.6 lakh contracts on June 2 as against 102.4 lakh contracts on May 26. An increase in price along with a reduction in OI shows short covering on Nifty futures.
Coming to options, the Put Call Ratio (PCR) of the nearest weekly expiry stands at 0.74, as there has been a greater number of call writing compared with put selling. This is a bearish sign. However, the PCR of June monthly options contract is at 1.38, indicating more put writing. So, although the outlook for this week may be a bit bearish, participants expect the index to recover towards the end of this month.
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For this week, 18,500 and 18,600 are the key support and resistance levels respectively as suggested by the options chain. Overall bullish bias will remain valid so long as the underlying index stays above the support at 18,500.
From a trading perspective, one can stay on the fence for now and initiate long positions when the Nifty 50 crosses over 18,600.
Nifty Bank
Even though the underlying Nifty Bank posted a loss last week, the June futures of the index gained a marginal 0.1 per cent. The contract closed at 44,111 on Friday.
On the other hand, the cumulative OI of Nifty Bank futures shot up to 25.1 lakh contracts on June 2 compared with 22.9 lakh contracts on May 26. We cannot read too much into this as contrastingly, the underlying index has dropped whereas the futures contract gained over the past week.
That said, strictly from derivatives perspective, we can assume that the Nifty Bank futures have seen mild long build-up as its price has risen along with an increase in OI.
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The PCR of weekly options is at 0.72 whereas the ratio of June monthly options stands at 1.14. So, like for Nifty 50, while the near-term outlook may be weak, traders appear to be bullish beyond the expiration of current weekly contracts.
For this week, Nifty Bank could struggle to cross the resistance at 44,000. Option chain reveals that 44,500 is the immediate resistance above 44,000. On the other hand, key support levels are there at 43,500 and 43,000.
Traders can wait for now and consider long positions once the index decisively breaks out of the hurdle at 44,000.