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Nifty 50 (24,011) and Bank Nifty (52,342) appreciated last week and posted a gain of 2.2 per cent and 1.3 per cent respectively. Here’s an analysis of the futures and options (F&O) data of both indices.
Nifty 50
Nifty futures (July) rallied 2.2 per cent over the past week and closed at 24,132. As it moved up, the cumulative Open Interest (OI) increased. It stood at 156 lakh contracts on June 28 as against 154 lakh contracts on June 21. A price rise accompanied by increase in OI indicates long build-up.
Another positive sign is the increase in the premium of July futures over the Nifty 50 index. So, overall, futures data gives us a bullish sign.
With respect to options, the Put Call Ratio (PCR) of weekly options is nearly 1. This means that the number of calls and puts sold are almost the same. But the PCR of monthly options is at 1.5, indicating writing of more put options, a bullish sign. So, broadly, the trend appears positive for Nifty.
The chart, too, supports this as the index and its futures hit record highs last week. Yet, there is a slight chance for a minor correction from the current level. Going ahead, the July Nifty futures might dip to 23,500 from the current level. But eventually the contract is expected to recover and rally to 24,800 in the short run.
Strategy: Buy July futures of Nifty at 24,100 and accumulate if the price dips to 23,500. Place stop-loss at 23,100. When the contract touches 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. That is, buy now and accumulate if Nifty futures moderates to 23,500. Place a stop-loss at the entry price of the option when Nifty futures rises to 24,500. Liquidate this option at the prevailing price when the July futures touches 24,800.
Bank Nifty
The July expiry Bank Nifty futures (52,530) gained 1.5 per cent over the past week. But unlike with Nifty futures, as the Bank Nifty futures went up, the cumulative OI decreased – it dropped to 27.6 lakh contracts on June 28 compared with 29.4 lakh contracts on June 21. This means short covering.
Coming to options, the positioning of traders in weekly and monthly contracts give a contrasting signal. The PCR of the weekly options is at 0.6, whereas the same of monthly options is at 1.3. So, the bias for this week is bearish, whereas that for the broader trend is positive.
The price action of Bank Nifty futures (July) on the daily chart also corroborates the high likelihood of a minor softening in price. The contract could slip to 51,600 before establishing the next leg of uptrend. Once the upswing resumes post the potential corrective decline, the contract can rally to 55,000.
Strategy: Buy Bank Nifty futures if its price comes down to 52,000. Target and stop-loss can be 55,000 and 50,500 respectively. As a risk management measure, after the trade is initiated, when the contract surpasses 53,200, alter the stop-loss to 52,000.
Rather than futures, one can consider buying call options. 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 touches 55,000.
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