Pullback may continue on Monday

F&O OUTLOOK

As expected, the benchmark indices filled the technical condition for a pullback by opening,on a positive note. However, after a volatile trading till the afternoon session, the indices gave a positive breakout taking lower level support and closing at the day’s high levels. Technical analysts expect this pullback to continue on Monday with the target for the Nifty at 2,800-3,000.

Buoyancy was seen in heavyweights such as Reliance Industries, State Bank of India, NTPC, Bharti Airtel, ICICI Bank and Larsen & Toubro. In the derivatives segment, the November futures of these stocks recovered by over 10 per cent from the day’s low on heavy short covering. Bloomberg data show almost two-third of the trading volume in these futures took place in the last 90 minutes.

Trading in the Nifty options suggests that the index has strong support at the 2,700 levels as options traders were seen buying 2,700 strike calls and selling 2700 strike puts. Also, options traders were seen covering out-of-the money calls above 2,800-3,000 strikes and booking profit at in-the-money puts above 2,800-3,000 strikes. This means traders expect the index to move between 2,800 and 3,000 on or before expiry of the current contract on November 27.

Trading volume in the F&O segment increased by Rs 10,000 crore as traders were seen covering their short positions in the Nifty futures and options and stock futures.

The Nifty November and December futures closed at a premium, indicating return of bull operators.

The November futures shed open interest of 0.68 million shares, while the December futures added open interest of 1.47 million shares indicating rollover of fresh long positions. However, rollover of 6.18 million shares in the December series were substantially lower compared with a rollover of 18.25 million shares at this time in the November series.

This means that F&O players have not rolled over or covered their positions at the current levels as they expect sharp volatility during the expiry period.