F&O Tracker: Tide Turning The Bulls’ Way

Nifty 50 (23,350) and Nifty Bank (50,594) appreciated 4.3 per cent and 5.3 per cent respectively. The chart shows positive signs. Here is an analysis of the futures and options (F&O) data of both indices.

Nifty 50

As March contracts will be expiring this week, we have considered Nifty April futures (23,528) for analysis and trade recommendation.

The contract rose 4.1 per cent for the week and it closed at 23,528 on Friday. As it happened, the Open Interest (OI) increased from 17 lakh contracts to 30.4 lakh contracts, showing long build-up.

Coming to options, the Put Call Ratio (PCR) of both March and April expiry, at 1.1 and 1.4 respectively, indicates higher number of put option writing (selling), a positive sign.

So, broadly, the F&O data is showing bullish inclination.

Considering the chart, Nifty futures (April) has breached notable resistance levels at 23,150 and 23,400. The contract posted gains in all sessions last week, denoting strong upward momentum.

That said, there is a final hurdle at 23,700, a breach of which can redefine the trend as bullish. This will open the door for a rally to 24,000. Above 24,000, the barrier is at 25,000.

Even if Nifty futures (April) is going to top 23,700, it might see a corrective decline before that, possibly to 23,000-23,150 price band, which is a support. In case the contract slips below 23,000, the bears can barge in and gain back control.

Strategy: Since there is one more resistance ahead, we suggest risk-averse traders to wait for Nifty futures (April) to breakout of 23,700 before initiating long positions.

Traders with higher risk tolerance can consider buying Nifty futures (April) if it softens to 23,150. Target and stop-loss can be 23,700 and 22,950 respectively.

Alternatively, participants can buy 23,200-call (April) at the prevailing premium when the April futures fall to 23,700. Likewise, target and stop-loss too can be based on the levels mentioned for futures.

Consider going long again if the contract decisively breaks out of 23,700. Target and stop-loss can be 25,000 and 23,400 respectively.

Nifty Bank

Nifty Bank futures (April) (50,944) rallied 4.5 per cent last week. During this period, the OI of this contract increased from 8.2 lakh contracts to 11.2 lakh contracts. Hence, there has been a long build-up.

The PCR of March and April expiry options stood at 1.3 and 1.2 respectively on Friday. So, traders have sold relatively more puts than calls, a positive sign. So, like in Nifty 50, the derivatives data of Nifty Bank gives it a bullish inclination.

Substantiating the positive bias, Nifty Bank futures (April) has moved past the 50,000-mark. Although there is a minor resistance ahead at 51,300, the price action is hinting at the potential extension of the rally.

However, as with any sharp movement, there might be a temporary corrective move. In this case, we might see Nifty Bank futures moderating to 49,800-50,250 region before beginning the next leg of rally. That upswing can lift the contract to 52,000 and 52,500.

Strategy: For better risk-reward ratio, traders can wait and go long on Nifty Bank futures (April) if it declines to 50,250. Target and stop-loss can be 51,300 and 49,700 respectively.

Instead of futures, participants can consider the 50,200-call option (April). Entry and exit prices can be based on the aforementioned levels of futures.

In case Nifty Bank futures surpass the barrier at 51,300, buy the contract. Target and stop-loss can be 52,500 and 50,750 respectively.