F&O Outlook: Nifty expected to close above 4,500 this week

After a period of consolidation at 4,400-4,450, the Nifty closed above the 4,500 mark yesterday on buying in index heavyweights by foreign institutional investors (FIIs). The Instanex FII index indicated that these investors bought shares of Bharti Airtel, DLF, ICICI Bank, Infosys Technologies, Reliance Industries and State Bank of India.

The Nifty closed at 4,528, marginally below the trend-line resistance level of 4,530-4,560, and hence has to close above 4,560 for an upside breakout. However, both the August futures and the September futures are trading at a premium to the spot, indicating that traders are creating fresh long positions.

The 4,500 call continues to attract traders as they expect that if the Nifty closes above 4,560, it can cross even 4,620. The 4,500 call witnessed unwinding of 1.84 million shares from the intra-day trading volume of 16.38 million shares. This means heavy short-covering and fresh long build-up by options traders on expectation of a breakout above 4,560.

Traders booked profit at 4,200-4,300 puts and wrote the 4,400 put as they expected the Nifty to maintain strong support at 4,400. However, the Nifty is expected to close above 4,500 next week as the current-month contract will expire on August 27. The 4,500 put added open interest of 0.70 million shares on Friday on such expectations.

The August futures traded at a premium almost throughout Friday and added open interest of 3.32 million shares intra-day. But at close of the day, traders unwound 2.14 million shares, indicating short-covering by bears. The September futures closed at 12 points premium to the spot and added open interest of 2.77 million shares, indicating rollover of long positions.