Last week, Nifty 50 (22,125) saw a significant decline of 2.9 per cent, while Nifty Bank (48,345) performed relatively better with a 1.3 per cent loss. Let’s delve into the futures and options (F&O) data for both indices.
Nifty 50
Last week, Nifty futures (March) (22,280) slid below a crucial support level at 22,820, creating a lower low on the daily chart. After hitting an intraweek low of 22,233, it closed at 22,280 on Friday.
Although there was a decrease in cumulative Open Interest (OI) as the contract fell, it was mainly due to the expiration of February contracts. The drop in OI alongside a price decline suggests that some long positions were unwound, which is not a positive sign for the bulls.
Looking at the options data, the Put Call Ratio (PCR) for the weekly expiry stands at around 0.7. A PCR below 1 indicates a higher number of call options being sold compared to puts, reflecting bearish sentiment. On the other hand, the PCR for the monthly expiry is around 1, showing no clear bias.
The chart indicates a bearish trend for Nifty futures. However, a minor upside movement towards 22,500 or 22,800 could be possible from current levels before a potential resumption of the downtrend. The support levels to watch for are at 21,830 and 21,150. A bullish reversal would only be confirmed if Nifty futures surpass 23,000, which seems unlikely at this point.
Strategy: Considering the risk-reward ratio, it may not be attractive to initiate fresh short positions at the current level. Traders could look to short Nifty futures (March) on a rise to 22,600 with a stop-loss at 22,950 and target of 21,830. Alternatively, buying the March expiry 22,600 put at a lower premium and setting a revised stop-loss as the premium changes could also be considered.
Nifty Bank
Nifty Bank futures (March) (48,628) recorded a 1.4 per cent decline last week. Similar to Nifty futures, the drop in cumulative OI was observed due to the expiry of the February series. The PCR for Nifty Bank options is around 1, indicating a lack of bias at the moment.
Despite the decline, Nifty Bank futures managed to hold above the key support level at 48,000. However, this does not signal a bullish trend reversal as a significant barrier lies at 49,800. A breach below 48,000 could lead to a further downside towards 46,000 and subsequently 44,000. Conversely, a breakout above 49,800 could push Nifty Bank futures towards 50,800 and potentially to 54,000.
The next price swing direction hinges on whether the support at 48,000 or the resistance at 49,800 is breached first.
Strategy: Given the lack of clarity in the trend, it is advisable to stay on the sidelines for now.
This article was published on March 1, 2025.
