Nifty 50 (21,731) and Bank Nifty (48,292) rallied 1.8 per cent and 1.7 per cent each last week. The uptrend is strong and both indices are expected to continue to appreciate. Here, we take a look at the derivatives data of both indices and gauge the participants’ sentiment.

Nifty 50

The January Nifty futures was up 1.5 per cent last week as it closed at 21,886 on Friday. As the price rallied, the cumulative Open Interest (OI) dropped – it fell to 142.5 lakh contracts on Friday compared with 158.5 lakh contracts by the end of the preceding week. A price increase accompanied by a drop in OI implies shorts making an exit. This is a bullish sign.

But the Put Call Ratio (PCR) of the nearest weekly expiry options stands at 0.9, showing a slightly higher number of call selling, a bearish hint. However, the PCR of monthly expiry, at 1.5, shows more put selling, a positive sign. Besides, the chart of Nifty futures indicates that the uptrend is intact.

We might see a minor dip in price or a consolidation for a short period of time and then a rally is likely to follow. So, traders can consider bullish positions like Nifty futures long or buy at-the-money (ATM) monthly call options. The nearest support for Nifty futures are at 21,730 and 21,500, whereas 22,000 and 22,300 are the potential resistance.

Derivative outlook
Short covering in futures of both indices
Option chain indicates a temporary pause before rally
Charts show the uptrend stays intact
Bank Nifty

The January expiry Bank Nifty futures gained 1.4 per cent last week as it ended at 48,629 on Friday. The cumulative OI decreased to 23.1 lakh contracts on December 29 versus 24.7 lakh contracts on December 22. A price rally and a decline in OI shows short covering.

Like in Nifty options, for Bank Nifty options, the PCR of weekly series stands at 0.8 whereas monthly contracts stands at 1.2. So, there might be a pause in the rally or a small dip from here. But then, the rally is eventually expected to resume. So, traders can consider buying Bank Nifty futures. Alternatively, one can buy ATM monthly call options. 

The chart shows that Bank Nifty futures has its immediate support at 48,500. Subsequent support is at 48,000. On the other hand, potential barriers for this week can be spotted at 49,000 and 50,000.

Long dated options

Nifty options that expire on December 26, 2024, shows bullishness. There has been considerable selling of 21000- (10,278 contracts) and 20000-strike (9,864 contracts) put options. This means, option participants do not expect Nifty to fall below 21,000 in 2024. On the other hand, 23000-call, with 2,776 contracts, has the highest OI. This is a potential resistance. But at this juncture, it appears weak and could give up easily, paving way for a rally. Besides, the PCR stands at 2.5, which means the number of put options sold are 2.5 times that of call options. This is a strong bullish signal. So, as it stands, the long-dated Nifty options hints positive outlook. Such options on Bank Nifty lack liquidity to assess the sentiment.

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