F&O Tracker: Index Futures Eyeing a Downswing

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Nifty 50 (24,718) was down 0.5 per cent, whereas Bank Nifty (51,350) posted a marginal 0.1 per cent gain last week. Below is an analysis of futures and options (F&O) data.

Nifty 50

Nifty futures (August expiry) (24,700) saw fresh short build-up last week as it lost 0.9 per cent accompanied by an increase in the cumulative Open Interest (OI). The chart indicates more room to decline, possibly to 24,300, a support.

A breach of 24,300 can result in another leg of downtrend, which can drag the contract to 23,880. The price region of 23,880-24,000 is a support band. But if the contract rebounds from 24,300, it can retest the barrier at 25,050.

Strategy: Last week, we suggested buying Nifty futures (August) at 24,915. Since a price correction is possible from here, traders can exit this position at the current level of 24,700.

Although the outlook is weak, the risk-reward ratio does not favour fresh shorts at the current market price. Therefore, for further trades, we need to wait.

Traders with high-risk appetite can short Nifty futures if it inches up to 24,870. Target and stop-loss can be 24,300 and 25,100 respectively. Instead of futures, traders can buy the 25000-strike August put option. Exit this contract at the prevailing premium when the futures fall to 24,300.

Bank Nifty

Bank Nifty futures (August series) (51,420) was down by a marginal 0.2 per cent last week. As the contract mostly remained sideways, traders made an exit, resulting in the drop of cumulative OI of futures.

Nevertheless, the chart shows a negative bias as the resistance at 52,200 has remained strong. Until this level holds, the inclination will be bearish. However, for the bears to establish a fresh leg of downtrend, the support at 50,900 should be breached.

If 50,900 is invalidated, Bank Nifty futures can decline to 50,000, a support. Subsequent support is at 49,300, the 61.8-per cent Fibonacci retracement level of prior uptrend. On the contrary, if the futures breaks out of 52,200, it can rally to 53,500 and 54,000.

So, broadly, the path of the next leg of trend depends on which direction Bank Nifty futures come out of the 50,900-52,200 range.

Strategy: Refrain from taking fresh positions now even as the price action is weak. Initiate short position if Bank Nifty futures slip below 50,900. Target and stop-loss can be 49,500 and 51,600 respectively.

Alternatively, post the breach of the support at 50,900, one can buy 51000-strike August expiry put option. Exit this at the going rate when Bank Nifty futures touch 49,500.