Nifty to trade below 2,750 in Feb expiry

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Both the benchmark indices, Nifty and Sensex, settled with small losses after the government cut excise duties further and lowered service tax rates to protect the economy from the global economic crisis. The Nifty maintained its support at 2,700 to close at 2,734 on short-covering at lower levels.

However, the market is expected to move sideways in the next few days due to the expiry of the February series. It is widely expected that the Nifty would trade in the range of 2,650-2,750 in the current expiry.

The 2,700 call options of the February series witnessed a trading volume of 10.67 million shares and shed an open interest (OI) of 815,850 shares, indicating profit-booking by traders.

The 2,700 put options of the February series shed an OI of 319,400 shares despite a trading volume of 12.71 million shares, indicating that very few traders had built up fresh positions, while others had exited.

However, despite high implied volatility of 43-48 for 2,400-2,700 puts, the March series added an OI of 2.02 million shares, indicating that traders expected a sharp correction in the next month series.

Siddhartha Bhamre, derivative and equity analyst at Angel Broking, expects that the Nifty may see 100-150 points surge in the March series, but eventually the market may correct sharply on weak global cues.

The Nifty March futures, which closed at a 16-point discount to the February futures, added an OI of 5.25 million shares, indicating short build-up. However, the bulls pinned their hopes on the strong build-up in open interest of 7.31 million shares at 2,800-3,000 calls of the March series. They expected the Nifty to trade above 2,900 for a while before correcting sharply.

The derivative data on trading by foreign institutional investors indicated formation of a significant short position in the index futures. However, they have covered some of their short positions in stock futures. Bank Nifty and most of the banking counters are trading around their support level and hence Bhamre expected some recovery in key banking stocks going forward.