F&O Outlook: Short-covering at lower levels

The Nifty tested the 3,800 level during early trade on Thursday and recovered thereafter on short-covering in banking and oil and gas stocks. ONGC, Reliance Industries, State Bank of India and ICICI Bank witnessed short-covering at lower levels. The average buying price in case of Reliance and ICICI Bank was 3 per cent lower than their last traded prices, indicating buying at lower levels.

Reliance Industries and ICICI Bank shed open interest (OI) of around 800,000 shares in September futures. However, rollovers in October futures were lower at around 300,000 shares, indicating that traders were sceptical about Thursday’s pull-back, which was largely due to short-covering. The SGX Nifty futures were trading at 3,980 as against the index closing at 4,044 on NSE. This suggests that the market will open on a weak note.

The Nifty September and October futures too witnessed lower level buying with 55.72 million shares changing hands for an average strike price of 3,955 each compared with the the last traded close of 4044. September futures witnessed a decline in OI by 1.92 million shares, while October futures witnessed good rollovers.

The turnover on the derivatives segment touched almost a three-month high of Rs 74,095 crore, with index futures and index options accounting for 76 per cent of the total trunover. Call option contracts at 4,000-4,300 strikes witnessed a trading volume of Rs 12,500 crore in the form of short-covering by call writers.

The 4,100-4,300 strike calls witnessed an unwinding of positions of around 1 million shares, indicating profit-booking. The 4,100, 4,200 and 4,300 strike puts witnessed a decline in OI, largely on account of profit-booking from put buyers.

The index is likely to move between 4,000 and 4,100 as the Nifty PCR OI at the 4,000 strike is at 1.40 and the 4,100 strike is at 0.62.