F&O Tracker: Bullish Momentum Signals More Upside

Nifty 50 (25,791) and Bank Nifty (53,793) registered fresh peaks last week and posted a weekly gain of 1.7 per cent and 3.6 per cent respectively. The futures and options data and the chart of both indices and their respective futures contract indicate that the upside can extend.

Nifty 50

Nifty futures (October) (25,887) was largely moving in a sideways trend until Thursday. But on Friday, the contract rallied considerably resulting in a weekly gain of 1.5 per cent.

As the contract went up, the cumulative Open Interest (OI) of Nifty futures, too, increased – it stood at 182 lakh contracts on September 20 versus 164 lakh contracts on September 13. A price rally and an increase in OI indicates fresh long build-up.

Supporting the positive bias, the Put Call Ratio (PCR) of September and October monthly options are above 1. So, there have been relatively greater number of put option selling (writing) compared with call selling. Traders write puts when their outlook is positive.

In addition, the chart shows a fresh breakout in Nifty futures. While the October contract might moderate to 25,700 from the current level of 25,887, we expect it to eventually rise towards the potential resistance band of 26,400-26,500.

Broadly, so long as the support at 25,500 is valid, the trend will be bullish, and traders are recommended to consider only long positions on futures or call options.

Strategy: Buy Nifty futures at 25,880 and accumulate if the price dips to 25,700. Place initial stop-loss at 25,480. When the contract rises above 26,200, revise the stop-loss to 25,900. Book profits at 26,400.

Alternatively, traders can consider 25800-call (October monthly expiry). Buy at ₹456 and accumulate on a dip to ₹350. Place stop-loss at ₹175. When the price crosses over ₹600, revise the stop-loss to ₹450. Book profits at ₹700.

Bank Nifty

Bank Nifty futures (October) (53,819) appreciated 3.2 per cent last week as it rallied through the week. The cumulative OI increased to 27 lakh contracts on September 20 from 25.7 lakh contracts on September 13. This shows long build-up.

The chart shows that the momentum is very strong, and the upside is supported by good volumes. Therefore, the probability of the rally extending is high.

From the current level of 53,819, Bank Nifty futures might moderate to 52,700. But then, we expect it to resume the uptrend and touch 55,200 in the short-term. Only a break below the support at 52,200 can change the trend bearish.

Strategy: Buy Bank Nifty futures at 53,800 and add longs if the price dips to 52,800. Keep stop-loss at 51,900. When the contract hits 54,500, modify the stop-loss to 53,800. Tighten the stop-loss to 54,200 when the price touches 54,800. Exit at 55,200.

Instead of futures, participants can go for call options. That is, buy 53000-call of October monthly expiry at ₹1,400 and on a dip to ₹700. Place stop-loss at ₹300. When the premium rises to ₹2,000, trail the stop-loss to ₹1,250. When the option price reaches ₹2,200 tighten the stop-loss to ₹1,800. Exit at ₹2,400.