F&O Outlook: Bears wary of short positions

The Nifty lost 23 points in the spot market on Wednesday and closed at 4,529. The August futures of the Nifty closed two points higher over the previous day’s close at 4,562. But its premium widened to 33 points from 10 points yesterday.
 
The Nifty August futures were trading at a premium of around 15-20 points to the spot market for major part of the session on Wednesday. The premium widened in the last 10 minutes of trade as almost 7 per cent of the total traded volume was transacted at the 4,560 level through bulk sales.

Bulk buying in the last 10 minutes at 4,560 suggests that the index has strong support in the range of 4,500-4,550. Nifty August futures contracts witnessed a decline in open interest (OI) at 0.87 million shares at the day’s close compared with an increase of 2.47 million shares during the intraday trade. This indicates that bear operators were wary of their short positions and squared them off in the last ten minutes of trade.

Option traders expect the Nifty to have support at 4,550 with resistance above the 4,600 level. There was a marginal covering of the sold positions in puts of 4,300 and 4,400 strikes as traders expect that a downside for the index is limited. The Nifty PCR-OI (put-call ratio-open interest) has decreased from 1.29 level to 1.27 level on marginal unwinding in puts OI at 4,100 and 4,300 strikes and an OI addition at 4,600, 4,700 calls led to a fall in the PCR-OI.

Interestingly, call options at 4,600, 4,700 and 4,800 strike prices remained the most-traded options, accounting for 45 per cent of the total volume of options.

Besides, the open interest at these strike prices accounted for one-third of the open interest in call options. This indicates that traders expect the index to achieve a short-term target of 4,850, if it moves out of the trading range of 4,500-4,550.