Options data suggest the index may recover

The Nifty broke the 50 daily moving average (DMA) level convincingly and closed below the 161.8 per cent retracement level of 4,760 on fresh selloff on the last day of the expiry today. Based on the simple moving average, the next stop for the index is the 200 DMA level, which is 3,904. However, the Nifty has strong support at 4,500 (261.8 per cent retracement levels of the recent rally from 4,921 to 5,182).

The indices have been correcting within a downward sloping “Channel” for the last two weeks with a few bottoming triggers on the charts. But for this, we will have to wait for a confirmation in the next couple of days, according to Gautam Shah of JM Financial. The risk/reward at current levels is again in favour of investing. Trading data in Nifty November options suggest the index may recover tomorrow.

Bloomberg data suggested a modest recovery in benchmark indices in the coming sessions as traders were buying 4,800 and 4,900 strikes calls of November series. The 4,800 call added 0.73 million shares in open interest through 55 per cent buy-side trades while the 4,900 call added 1.20 million shares in open interest through 51 per cent buy-side trades.

Traders sold 4,700-4,800 strikes puts on expectation the Nifty might recover from the current levels and start trading above 4,800 soon. The 4,600 and 4,700 strikes puts added over 1.1 million shares in open interest as traders expected the Nifty to get support at these levels.

The 5,000 strike put, trading at a premium of Rs 250, saw profit-booking, indicating that the current premium might fall in the near future if markets recover sharply. The Nifty November futures, which closed at 25 points premium to the spot, have added 6.39 million shares in open interest, mostly through buy-side and neutral trades, indicating a fresh long build-up.