F&O Outlook: Strong resistance near 4,300 levels

The bulls’ party is likely to be over if the Nifty moves above 4,300. This level appears to be the supply zone as traders were seen writing the 4,300 strike call despite 3 per cent rise in the index. Nifty’s close of 4,233 has been the upper limit of the current rally and hence there is little room for a fresh upside.

Futures traders have understood the higher-level weakness and so the average trade in the Nifty July futures was at 4,178, compared with the end-of-the-day close of 4,236. Data from Bloomberg suggested profit-booking by the bulls when the Nifty crossed 4,200. The data indicate that 30 per cent volume changed hands above 4,200. Of these, 19 per cent were sell-side trades.

The Nifty futures traded at premium to the spot and added open interest of 3.10 million shares in intra-day trades. However, at close, the open interest in the Nifty futures declined by 330,700 shares despite a trading volume of 26 million shares. Bloomberg data suggested that traders were booking profit all through the day while the index kept rising after opening at around 4,140.

Siddhartha Bhamre, derivative and equity analyst at Angel Broking, expects the Nifty to witness profit-booking near 4,300. Though the market may not go down substantially from the current level, there is little room for upside. The implied volatility is 34-35, which signifies resistance to fresh long build-up.

Options traders were seen writing 4,300-4,400 strikes calls as open interest in these options has increased by 423.250 shares, mostly through sell-side trades. The 4,200 call change hands as open interest in this call has increased marginally by 90,450 shares despite a trading volume of 8.25 million shares. This means the Nifty can drift below 4,200 in the near future.