F&O Tracker: Bullish Inclination Surfaces, But Stay Cautious

Nifty 50 (19,425) and Bank Nifty (43,820) advanced for the second week in a row and have started showing signs of a bullish reversal. However, most of last week’s gain came due to the considerable gap-up open on Monday. Post this, the indices remained largely flat. So, traders need to be cautious.

Besides, the futures and options (F&O) data do not give a definite bias with respect to trend. Here’s an analysis.

Nifty 50

The November Nifty futures rallied 0.9 per cent last week as it closed at 19,483 on Friday. On a weekly basis, there was a marginal drop in the cumulative Open Interest (OI) of Nifty futures – it came down to 123.9 lakh contracts on November 10 versus 124.6 lakh contracts on November 3. Small changes in OI do not support the trend in either direction as traders largely seemed to sit and watch.

The Put Call Ratio (PCR) of the nearest weekly and monthly options on Nifty 50 stands at 0.9 and 1.2 respectively. A ratio less than 1 indicates relatively higher call selling, a bearish sign. If the ratio is greater than 1, there have been more put selling, a bullish sign. So, the participants seem to be bearish for the week and at the same time, they expect a recovery towards the end of the month.

According to the options chain, 19,500 is a considerable resistance as the 19500-call has significant OI. The chart of Nifty futures also shows that 19,530 is a barrier. So, despite the recent rally, we suggest staying on the fence for now and consider long positions only if Nifty futures break out of 19,530.

The chart also shows that there is support at 19,380. A breach of this level can possibly turn the trend bearish. The 19400-put has the highest OI and this means that 19,400 can provide support for Nifty futures.

Derivative outlook

Nifty and Bank Nifty futures moving in a range

Options on indices show varying sentiment

Traders stay on the fence for now

Bank Nifty

The November expiry Bank Nifty futures went up 1 per cent last week as it ended at 43,952 on Friday. As the contract rallied, the cumulative OI of Bank Nifty futures shot up. It increased to 29.2 lakh contracts on November 10 versus 25.6 lakh contracts on November 3. This is a clear case of fresh long build-up.

However, options show neutrality. The PCR of both weekly and monthly expiry stood at 1 on Friday, meaning the number of calls and puts sold are nearly the same. Substantial amounts of put options with strikes between 43,500 and 43,800 have been sold. Also, 43900- and 44000-calls have witnessed considerable selling. So, there is no clear indication with respect to sentiment.

The chart of Bank Nifty futures shows that it is trading between 43,500 and 44,000. So, even though there is long build-up in futures, we suggest waiting for the breakout of 44,000 before initiating fresh buys.

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