Nifty may settle at 2,800 on expiry

The Nifty staged a strong rebound on Friday from lower levels on expectations of a further easing in the monetary policy by the Reserve Bank of India, and buying by foreign funds. The Nifty, however, formed a Doji pattern for the second day in a row, indicating uncertainty at 2,800 levels.

Technically the Doji pattern is formed when benchmark indices open and close at the same level. The Nifty, in Friday’s trade, opened at 2,807.35 and closed at 2,807.05.

The BSE Sensex and the S&P CNX Nifty have risen sharply in the past few days, but they have not sustained above 9,000 and 2,800 levels, respectively. It would be crucial for the benchmark indices to close above these levels with strong volumes to continue the uptrend. The open interest (OI) is getting added at 2,800 strike call, and put options in last the three trading sessions indicate that the Nifty would settle at around 2,800 levels on the day of expiry.

The Nifty March futures closed at a discount of five points to spot, while it shed OI of 1.54 million shares, indicating short covering at lower levels and profit-booking at the higher levels. The futures, thus, has shed OI of 4.2 million shares in the last five days, largely due to unwinding of short positions by foreign institutions.

The April futures, which continue to trade at a discount to spot and also to March futures, has added OI of 8.5 million shares in five trading sessions. This indicates that traders who expect indices to move up sharply have rolled over their positions well ahead of expiry as April futures were available at a deep discount.

Still, the 2,800 call option has the highest OI, while unwinding of open positions was observed in 2,700 call option. The 2,800 put is witnessing fresh OI build-up, largely through writing of put options. This means that the markets are not showing any direction and implied volatilities (IVs) are also low. There is no point in selling options as of now and one can trade with buying options rather than futures.