F&O Tracker: Record Highs and Positive Signals

Nifty 50 (20,268) and Bank Nifty (44,814) gained 2.4 per cent each last week. The benchmark index – Nifty 50 – made record highs and looks set to rally further. Bank Nifty is now showing signs of renewed confidence. Here, we take a look at the futures and options (F&O) data to understand the expectations of derivatives market participants.

Nifty 50

The December Nifty futures closed at 20,375 on Friday, advancing 2.2 per cent for last week. The contract posted gain in all sessions over the past week.

As this happened, the cumulative Open Interest (OI) of Nifty futures ballooned till Thursday and saw a sharp fall on Friday – it shot up to 175 lakh contracts on November 30 versus 130.6 lakh contracts on November 24; it tumbled to 108.7 lakh contracts on December 1.

However, Nifty futures continued its upswing on Friday too. On a weekly basis, we can see considerable short covering, as the price went up and the OI declined. The chart of Nifty futures suggests potential for further rise this week.

On the options front, the Put Call Ratio (PCR) of the nearest weekly and monthly options stood at 1.2 and 1.4 respectively. Thus, a greater number of call options are being sold compared with put options, a bullish indication.

According to the option chain, the price region between 20,000 and 20,200 is a support band as cumulatively, the put options with these strikes have considerable OI. On the other hand, 20400- and 21000-strike calls have the highest OI. So, these are potential resistance levels.

The above factors denote a positive outlook. So, traders can consider bullish strategies. Consider longs on Nifty futures or alternatively, one can go long on at-the-money (ATM) December monthly call options.

Bank Nifty

The December expiry Bank Nifty futures appreciated 2.3 per cent last week as it closed at 45,071 on Friday. The OI movement was similar to that in Nifty futures.

The cumulative OI of Bank Nifty futures surged to 33.3 lakh contracts on November 30 versus 28.6 lakh contracts on November 24; it fell to 23.9 lakh contracts on December 1. On a weekly basis, the price has gone up whereas OI declined, implying short covering.

The PCR of immediate weekly expiry and December monthly expiry stood at 1 and 1.2 respectively. A ratio of 1 shows that the selling of call and put options are almost the same in the weekly expiry, whereas a ratio more than 1 with respect to monthly contracts gives a positive inclination because of more put selling.

As per the weekly option chain, 44,800 and 44,500 are the possible supports since put options with these strikes have highest OI. On the other hand, 45000-call have significant OI and so, this is a potential resistance. Subsequent resistance can be 46,000.

The overall bias is positive for Bank Nifty futures and traders can go long. Participants can also consider buying call options which requires lesser margins. Traders preferring options can go with December monthly expiry ATM call options.