F&O Outlook: Markets may see higher levels

The Nifty may subsequently test 4300 and 4400 and the Sensex could head to 14,700. However, a lot hinges on the outcome of the vote of confidence proceedings in Parliament.

The foreign institutional investors covered their short positions in index and stocks futures during the day.

The 4200 and 4300 call options aggregated trading volumes of 219,696 contracts valued at Rs 4,700 crore, accompanied by a decline in open interest, indicating short covering. The call writers expect these levels to be reached.

The Nifty July futures ended at a premium for the first time. They registered trading volumes of 30 per cent in the very first hour of trading at an average price of 4110 and 35 per cent of trading volumes in the last hour at an average price of 4150.

The bids were mostly on the buy side, which suggests that short covering took place in the morning and fresh long positions were build up in evening trading.

The open interest in Nifty futures rose by 4.4 million shares at close, indicating a build-up in long positions. However, the open interest declined by 0.5 million shares in after-market trading, suggesting covering of short positions.