As the derivatives data indicated, Nifty 50 (17,413) and Nifty Bank (40,485) opened last week on the front foot. However, bulls could not hold on and the indices saw a sharp decline towards the end of the week. Consequently, Nifty 50 and Nifty Bank lost 1 and 1.9 per cent, last week.
Bulls seem to have lost the plot and the derivatives data now shows considerable bearish bias. Here’s a look at the data of both indices.
The March futures contract of Nifty 50 lost 1.2 per cent to close at 17,453. Parallelly, the cumulative Open Interest (OI) of Nifty futures increased to nearly 141 lakh contracts on Friday compared with 129 lakh contracts by the end of the preceding week. This shows short build-up.
The bearish inclination is substantiated by the options data too. The Put Call Ratio (PCR) of the nearest weekly expiry stands at 0.68 which means a greater number of call options were sold when compared with put. This is a hint that the broader market expectation is negative. At-the-money (ATM) and the nearest out-of-money (OTM) call options have seen considerable selling. Thus, the underlying index is expected to face a series of resistances.
Both futures and options data show that bears have come back strongly, and the likelihood of a fall is high. Traders can consider shorting futures. Alternatively, one can execute bearish strategies on options like bear call spread and bear put spread.
Short build-up on both Nifty 50 and Nifty Bank futures
PCR of weekly options reveals bearish sentiment
Participants can opt for bearish strategies
Despite cracking a resistance in the week before last week, the Nifty Bank futures were unable to produce a follow-through rally. The March futures contract, which was flat for most part of last week, fell sharply on Friday. As the futures lost 2 per cent and the cumulative OI shot up to 50.6 lakh contracts from 49 lakh contracts over the past week, the contract has seen a short build-up.
The PCR of weekly expiry options stood at 0.58 on Friday showing that participants sold call options more than put options. While the 40500-strike call option saw selling, the 40500-strike put was bought significantly. Thus, the chances of a decline from the current level are high.
Given the above factors, one can initiate short positions on Nifty Bank futures. Or traders can also opt for bearish options strategies like bear call spread and bear put spread, like we suggested for Nifty 50.