F&OTracker Fall in Call OI Hints at Profit Book­ing

The Economic Times - - Markets & Finance -

A clear and de­ci­sive elec­toral man­date (ab­so­lute ma­jor­ity to a sin­gle party af­ter 30 years) in the Lok Sabha elec­tions has breathed new life into the mar­kets. Ex­pec­ta­tions are run­ning high about a grad­ual but cer­tain eco­nomic turn­around go­ing for­ward.

Com­ing back to F&O mar­ket in­ter­nals, post elec­tion re­sults, there has been an ag­gres­sive long buildup in the Nifty and Bank Nifty fu­tures. Both these fu­tures con­tracts’ open in­ter­est has seen around 40% jump.

On the op­tions front, we have seen un­wind­ing in most of the call op­tions. Ear­lier, we had men­tioned in our pre­vi­ous note that traders have ini­ti­ated long po­si­tions by buy­ing call op­tions. The fall in call open in­ter­est in­di­cates some amount of profit book­ing by traders as elec­tions are over now.

Of late, we have also seen writ­ing in out-of-the-money puts and calls, which in­di­cates that op­tions traders ex­pect mar­kets to trade in a range. Op­tions data sug­gests a range of 7000-7400 for the cur­rent F&O se­ries.

Op­tion IVs have seen a sharp fall post the elec­tion re­sults, which were very much in line with our ex­pec­ta­tions. Go­ing for­ward, we be­lieve that In­dia VIX In­dex can cor­rect fur­ther and test 15% lev­els.

We be­lieve that the cur­rent sce­nario is best for op­tions writ­ing and rec­om­mend gen­er­at­ing short strad­dle in Nifty fu­tures at 6300 strike. Cur­rently, the spread is trad­ing at 140 points.

The CNX Me­dia and CNX Mid­cap in­dices have given a break­out on long-term charts. We be­lieve that mid-cap stocks will con­tinue to out­per­form large-cap peers.

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