F&O Tracker: Upward Trajectory Remains Steady

Nifty 50 (24,324) and Bank Nifty (52,660) stretched the upswing last week and posted a gain of 1.3 per cent and 0.6 per cent respectively. The uptrend remains valid for both indices and the derivatives data point to further rally from here. Here’s an analysis.

Nifty 50

Nifty futures (July) appreciated 1 per cent over the past week and closed at 24,379. This happened due to long build-up, which is indicated by the increase in the cumulative Open Interest (OI) of Nifty futures. It went up to 157.7 lakh contracts on July 5 against 155.9 lakh contracts on June 28.

The options data, too, show bullish bias. While the Put Call Ratio (PCR) of weekly expiry stands at 1, the same for July monthly options is at 1.4. A ratio greater than 1 is because of a comparatively higher number of put option selling than call options. Traders write puts when they expect the underlying to go up.

The price action conforms to the positive indications provided by futures and options data. Nifty July futures surpassed 24,100 early last week and this level will henceforth act as an important support.

The chart does not illustrate any signs of reversal, leaving more room on the upside. We anticipate Nifty futures rising to 24,800 in the near term. On the other hand, if it falls and breaches the support at 24,100, the downswing can extend to 23,800 or possibly to 23,500. A breach of the base at 23,500 can turn the short-term outlook bearish.

Strategy: Last week, we suggested buying Nifty futures at around 24,100. Traders who initiated longs can hold them. But revise the stop-loss from 23,100 to 23,800.

One can also go for new buy trade now at 24,380. Add longs if the price dips to 24,100. Place stop-loss at 23,800.

Going ahead when the contract crosses over 24,500, tighten the stop-loss to 24,200. Book profits at 24,800.

Alternatively, you can buy a 23800-strike July monthly call option now and accumulate if Nifty futures drop to 24,100. Place a stop-loss at the entry price of the option when Nifty futures surpasses 24,500. Liquidate this option at the prevailing price when the July futures hit 24,800.

Bank Nifty

The July expiry Bank Nifty futures (52,724) gained 0.4 per cent over the past week. It witnessed long build-up as the cumulative OI rose along with the price – it went up to 30.3 lakh contracts on July 5 versus 27.6 lakh contracts on June 28.

With respect to options, the PCR of weekly and monthly contracts give a differing bias, which was the case at the end of the preceding week too. While the weekly PCR is at 0.7, a bearish sign, the monthly PCR is at 1.2, a bullish indication.

Considering the options positioning, there is a good chance for Bank Nifty futures to continue the consolidation phase, at least in the first half of this week. The chart shows that the contract has been oscillating between 52,300 and 53,300 for nearly two weeks.

While we expect Bank Nifty futures to eventually break out of 53,300, we cannot reject the possibility of it moderating to 52,000 before that. Support below 52,000 is at 51,400 a breach of which can turn the near-term outlook bearish. On the other hand, potential barriers above 53,300 are at 55,000 and 57,000.

Strategy: Buy Bank Nifty futures if its price comes down to 52,000. Keep a stop-loss at 50,500. When the contract moves past 53,300, modify the stop-loss to 52,400. Exit at 55,000.

Instead of futures, traders can consider buying calls. We recommend the 52000-call option of the July monthly contract. Go long when Bank Nifty futures dips to 52,000. Liquidate the option at the going rate when Bank Nifty futures touch 55,000.

In case the contract breaks out of 53,300 without dropping to 52,000, you can go long on futures. Target and stop-loss can be 55,000 and 52,400 respectively. As an alternative to this, you can buy call options, preferably 53000-strike.