May futures trading at a premium

F&O OUTLOOK

We had indicated the possibility of intra-day profit booking in this morning's online market report. Our outlook was based on the five days relative strength index (RSI), which crossed 80 when the Nifty was trading around 4950 in early trade.

Technically, an RSI above 80 suggests that the markets are overbought. The level of 4955 is also close to its 50 days simple moving average (DMA). Therefore, profit booking was inevitable.

Technically, an RSI above 80 suggests that the markets are overbought. The level of 4955 is also close to its 50 days simple moving average (DMA). Therefore, profit booking was inevitable.

The high premium commanded by the Nifty April futures also restricted any upmove as bears hammered the Nifty in early trade. The premium consequently vanished and the Nifty April futures actually traded at a discount through most of the day.

The Nifty April futures premium declined to one point at close from yesterday's 17 points, while the open interest went up by 12 per cent or 31.76 lakh shares, indicating buying by bulls below the 4900 levels.

The open interest in Nifty May futures rose further by 44 per cent and the May futures traded at a premium to the April futures.

However, bears apparently squared off their short positions as the open interest declined steeply by 10 per cent after the trade close-out (close-out take place 30 minutes after trading session).

The options activity suggests the bears' unwillingness to surrender the 5000 level. The 5000 call OI increased by 17.7 per cent to 39.07 lakh, amounting to 21 per cent of the total call options OI.