The Nifty today closed above 2,800, raising expectations of the bulls of a fresh upmove during the expiry week starting Monday.
The trading in 2,900 call options suggests that bears are covering their short positions in the Nifty by purchasing 2,900 calls. This indicates that traders expect the Nifty to cross the week’s high of 2,835 probably next week and even cross the most crucial level of 2,850.
Foreign institutional investors (FIIs) have been driving the current pullback as they are buying in the cash segment and covering their short positions in the F&O segment. The FIIs, after forming long positions in Nifty futures on Monday and Tuesday, had covered short positions on Wednesday. They had increased their long positions in Nifty futures by almost 2 million shares in the first two days and then shed short positions by 2 million shares on Wednesday.
Today, the Nifty March futures shed an open interest (OI) of 2.09 million shares on an intraday trading volume of 34.92 million shares. The futures closed at 2,801, while its discount to the spot declined from 15 points to 5 points, indicating that positional traders who had a bearish view have covered their positions. The traders who are bearish and expect the Nifty to trade around 2,800 in this expiry seem to be building long positions in the April series, which is trading at a discount.
Siddhartha Bhamre, derivatives and equity analyst at Angel Broking, expects the positive momentum to continue for some time due to the positive sentiment created by FIIs. Point-2,800 is becoming the supply zone and hence the Nifty is expected to trade around this level at least during the expiry week.
There is no significant unwinding in the 2,800 call option and this level is acting as a resistance for the market. The OI build-up in 2,700 and 2,800 put options seems to be a blend of buying and selling and, hence, the market can expect the Nifty to trade above 2,700 and may settle around 2,800 in this month’s expiry. So, it is expedient for investors to avoid going short above 2,800, says Bhamre.
However, the Bloomberg data suggest that almost 52 per cent of the volume in the Nifty March futures changed hand at an average of 2,805, indicating that a strong support is building up near the 2,800-level.
Three weeks of range trading have led to low premiums and expectations that the market will not move much on settlement day.