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Nifty 50 (23,501) closed flat last week, whereas Bank Nifty (51,661) gained 3.3 per cent, outperforming the benchmark index. Below is an analysis of futures and options of both indices and the answer to what traders should do.
Nifty 50
As June contracts are set to expire this week, we have considered July futures for analysis. It closed marginally higher at 23,612 on Friday compared with preceding week’s close of 23,589.
Even though the contract was largely flat, the cumulative Open Interest (OI) increased. It went up to 154 lakh contracts on June 21 versus 149 lakh contracts on June 14. Since the price gain was only marginal, it would be apt to say that futures witnessed mild long build-up.
The Put Call Ratio (PCR) of June options stands at 0.9. A ratio less than one shows greater call option selling, a bearish sign. However, the PCR of July contracts is at 1.6, thereby giving a bullish inclination.
Futures and options, together, indicate that Nifty futures might see some consolidation with a bearish bias until June contracts expire and might rally afterwards. That said, the chart is yet to support this.
The July futures is now moving in the sideways band of 23,350-23,750. Going by the charts, the short trend is uncertain and most likely, the direction in which the contract moves out of this band shall be the clue.
A breakout of 23,750 can lift the contract to 24,000 and then to 24,300. On the other hand, a break below 23,350 can result in a downswing to 23,000 and 22,800.
Strategy: Hold off on trading for now. Initiate fresh position along the direction of the break of the 23,350-23,750 range.
Traders, who have higher risk appetite and can commit higher margins, may execute short strangle option strategy now by simultaneously selling 23200-put and 24000-call of July expiry. Exit the strategy when Nifty futures break the 23,350-23,750 range.
Bank Nifty
The July expiry Bank Nifty futures (51,771) advanced 2.9 per cent over the past week. As the contract went up, the cumulative OI increased to 29.4 lakh contracts on June 21 versus 27.3 lakh contracts on June 14. This indicates fresh long build-up.
The contract rallied through last week but saw a corrective dip on Friday as it faced resistance at 52,000. Nevertheless, the price action shows that the trend is bullish and there are no signs of a bearish trend reversal.
If the hurdle at 52,000 is breached, Bank Nifty futures can rally to 55,000 in the near term. However, if the contract falls, it can find support at 51,000 and 50,300. Just below this is its 20-day moving average at 50,100. A break below this level can turn the near-term trend bearish.
With respect to options, the PCR of June options is now at nearly 1, implying almost equal number of call and put option selling. But, the PCR of July options is at 1.3, giving a bullish inclination to the index.
Strategy: Avoid trading at the moment as Bank Nifty, too, may chart a sideways trend going ahead. Go long on Bank Nifty futures only if it breaks out of 52,000. Target and stop-loss can be at 55,000 and 50,000 respectively.
Instead of futures, one can consider buying call options. We suggest buying 52000-call option of the July monthly contract when Bank Nifty futures surpasses the barrier at 52,000. Liquidate the option at the going rate when Bank Nifty futures touch 55,000.
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