F&O Tracker: Bulls Triumph Over Bears

Nifty 50 (24,678) and Bank Nifty (53,510) broke through key barriers last week and recorded a gain of over 2 per cent each. The derivatives data of the indices indicate that there has been good buying interest, keeping the door open for further upside.

Nifty 50

Nifty futures (December) (24,783) witnessed fresh long build-up over the past week as it rallied 2.3 per cent simultaneously seeing an increase in the cumulative Open Interest (OI). This is a notable bullish sign.

Not just futures, option segment, too, substantiates the positivity as the Put Call Ratio (PCR) of December expiry options stood at 1.2 on Friday. A ratio greater than 1 is because of relatively higher number put short positions in the system. Traders generally sell puts when their outlook is tilted to upside.

In addition, Nifty futures broke out of the resistance at 24,500 early last week. Although there is a barrier immediately at 24,800, the price action shows strong positive momentum, which has the potential to lift the contract above 24,800.

A breakout of 24,800 will most likely lead to a rally to 25,250. Resistance above 25,250 is at 25,550. But in case there is a fall from the current level, Nifty futures can find support at 24,500 and 24,250. Nevertheless, given the prevailing chart set-up, a decline below 24,500 is unlikely.

Strategy: We had suggested buying Nifty futures at 24,250 a couple of weeks ago. Hold on to this trade. Last week, we recommended revising the target and stop-loss to 25,250 and 24,200 respectively, which can be maintained at the same level for this week. 

Participants who bought the 24200-call (December) instead of futures can retain the trade. Exit the option at the prevailing premium when the futures contract hits 25,250.

Bank Nifty

Bank Nifty futures (December) (53,718), after struggling for two months, finally breached the resistance at 53,000 last week. It advanced by 2.6 per cent. Along with this, the cumulative OI of Bank Nifty futures went up, denoting long build-up.

The PCR of December monthly options stood at 1.1 on Friday, showing selling of relatively higher number of put options than call options. This is a positive signal.

A breach of the barrier at 53,000 means Bank Nifty futures can rise towards the nearest potential resistance at 55,000. Subsequent resistance is at 58,000.

On the other hand, if the contract falls from the current level, the downside can be arrested by the resistance-turned-support of 53,000. Nearest base below 53,000 is at 52,000, where the 20-day moving average coincides.

As it stands, the price action and the futures and options data hint at more gains in the forthcoming sessions. 

Strategy: Last week, we suggested buying Bank Nifty December futures if it breaks out of 53,000. Traders who initiated this trade can retain the position. But move the stop-loss slightly higher from 52,000 to 52,500. Book profits at 55,000.

Those who bought the 53000-call option of December expiry as an alternative strategy to buying futures, can hold on to the trade. Liquidate the option at the prevailing premium when Bank Nifty futures hit 55,000.