F&O Outlook: Profit-booking possible above 4,850

The index closed above 4,730 levels but thin volumes in derivatives indicated lack of participation from traders. Now, the index is 60 points from its upside target of 4,850. We may see profit-booking after this. However, based on build-up in call options, it can move up further to around 4,900, before correction sets in. Profit-booking was seen at 4,500-4,800 calls while fresh call writing was seen at the 4,900 strike call. This means the call buyers expect a correction if the index closes above 4,850 levels.

The Nifty September futures witnessed short covering during the intra-day session but traders seemed to have created fresh shorts with the index started trading above 4,800 levels. The futures added 0.70 million shares in open interest (OI) and Bloomberg data suggest a build-up of short positions in the last 35 minutes of trade. Trading data show 25 per cent volume in the Nifty September futures, mostly sell-side trades, changed hands in the last 25 minutes while its premium slipped to 8 points from a high of 15 points, indicating creation of short positions.

Siddhartha Bhamre, derivative and equity analyst at Angel Broking, expects the index to move up around the 4,850-4,900 level as some short positions are still uncovered. Though it is not the right time to go short, one can book profit if the index moves above the 4,900 level as the upside is limited to 50-100 points but the fall could be over 200-300 points. He said banking stocks could be the next movers on short covering.

The trading volume in the Nifty puts suggests the index has strong support at 4,500 and 4,600 levels. However, traders have added open interest in 4,700 and 4,800 puts on expectation of a fresh rally in the Nifty above 4,850. The open interest in the 4,900 put has risen 160 per cent, so where is the Nifty heading…?