Bears ran the show last week as both Nifty 50 (17,100) and Nifty Bank (39,598) posted a weekly loss. While the former lost 1.8 per cent, the latter depreciated by 2.2 per cent over the past week. The derivatives data show that the bears might not have been done yet as there are indications of further decline. Here’s a look at the derivatives data.
The March futures contract of Nifty 50 lost 1.6 per cent to close at 17,178. As the prices dropped, participants have only increased their paying bet. The cumulative Open Interest (OI) of Nifty futures increased to 153 lakh contracts on March 17 as against 141 lakh contracts on March 10. This shows short build-up.
Options data too falls in line with this sentiment. The Put Call Ratio (PCR) of the March 23 expiry options stood at 0.69 on Friday – a greater number of call options were written compared to put options. This indicates a weak sentiment as participants do not seem to expect a rally. However, notably, the 17000-strike put option has seen considerable selling. So, this might act as a support. But if breached, we are in for another leg of downtrend.
Considering the above factors, traders can implement strategies that align for limited downside until the support at 17,000 holds for Nifty 50. Alternatives are bear call and bear put spread. Go for directional shorts only if the support at 17,000 is taken out.
Short positions added on Nifty 50 and Nifty Bank futures
More call writing indicates bearish inclination
F&O data hints at a restricted fall
The March Nifty Bank futures were down 2.2 per cent last week. Along with this, the cumulative OI of Nifty Bank futures shot up to 55.2 lakh contracts on Friday when compared to 50.6 lakh contracts by the end of the preceding week. So, there has been a fresh short build-up.
The PCR of the nearest weekly expiry options stands at 0.79. Again, showing bearish bias as a considerable number of call options had been sold. Hence, both futures and options data suggest similar bearish inclination. That said, the 39000-strike put option has been written significantly. That means, the index has a support at this level. Yet, once this is broken, we might see a swift fall.
Like in Nifty 50, traders can go for strategies that can capitalize on the potentially limited downside movement like bull call and bear call spread. Take directional bets for the downside only when the index slips below the support at 39,000.