Post-Budget weakness expected

As expected, the Nifty moved in a narrow range and closed at 4,875 on lack of buying above 4,880. Bloomberg data suggested that participants were indecisive and not willing to sell below 4,855 and buy above 4,875.

The open interest in Nifty options indicates the February series is likely to expire at 4,900. So, the index is expected to move in a narrow range with profit-booking above 4,900 and short-covering below 4,850.

The market is expected to move in a narrow range in the next two sessions. This is because participants are willing to trade in 4,800 and 4,900 puts and call options. A long straddle was seen at 4,800 as a few traders expected either-side movement in the Nifty around 4,800.

Nifty February futures closed at a premium to spot and shed 2.02 million shares in open interest, mostly through a blend of buy and sell trades, indicating profit-booking and short-covering. The March futures saw poor rollovers and that too at a marginal discount to the spot as participants were not willing to take either-side positions before the Budget on February 26. Interestingly, open interest build-up in the March series in the next two trading sessions will be important to judge the post-Budget market levels.

However, futures and options participants expect that the Budget proposals may not be encouraging. So, they were willing to sell 4,500-4,700 strike puts of the March series. The 4,800 call options of the March series saw unwinding of open interest on expectation of post-Budget weakness in the market. Traders wrote 4,900-5,100 calls of the March series on expectation the Nifty would face strong resistance above 4,900 if the Budget was not encouraging.