Nifty futures poised for intra-range decline

Bank Nifty futures staring at a psychological barrier

Nifty 50 (22,476) and Bank Nifty (48,924) faced a sell-o on Friday. While this led to the former ending the week on a flat note, the latter managed to post a gain of 1.5 per cent. Below is an analysis of futures and options data.

NIFTY 50

Nifty futures (May expiry) closed the week almost flat at 22,575 versus previous week’s close of 22,556.

The chart of May Nifty futures shows that it has largely been oscillating between 22,200 and 22,850. The intraday decline on Friday occurred from 22,850.

So, going ahead, there is a chance for Nifty futures to fall towards 22,200. Supporting the bearish bias, the Put Call Ratio (PCR) of Nifty weekly options is at 0.6. A ratio less than 1 denotes a relatively higher number of call options selling. Traders sell calls when they are bearish. But the PCR of monthly options is at 1.3,

DERIVATIVE OUTLOOK

Index futures fall o a resistance

Weekly option chain gives a bearish tone

Consider short positions on both indices a bullish signal. There is a good chance for Nifty futures to recover after a fall from here.

The decline can be arrested at the bottom of the range at 22,200. The weekly option chain shows a significant number of 22200-put selling. Meaning, traders do not expect a fall beyond this level. Subsequent support is at 22,000.

Strategy: Short Nifty futures when it rises to 22,750. Place initial stop-loss at 23,000. When the contract slips below 22,500, alter the stop-loss to 22,750. Tighten the stop-loss further to 22,500 when the price drops to 22,300. Book profits at 22,200.

In case Nifty futures break below 22,500 from here, without seeing a rise to 22,750, initiate fresh short positions. Place stoploss at 22,750 initially and then follow the same modifications as mentioned above.

Instead of selling futures, one can buy put options. If Nifty futures go up to 22,750, buy 22700put. Liquidate this at the prevailing premium when the futures fall to 22,200. On the other hand, if Nifty futures fall below 22,500 from here itself, buy 22500-put. Exit this at the going price when Nifty futures decline to 22,200.

BANK NIFTY

Bank Nifty futures (May expiry) (49,095), despite losing in three out of four sessions last week, ended up with a weekly gain of 1.5 per cent because of a strong rally on Monday. The chart shows that the contract has been facing rejections at the resistance at 50,000.

The prevailing price action hints at a fall from the current level. Supporting this, the PCR of weekly options stood at 0.6 on

Friday. This shows amount of call writing.

The nearest support for Bank Nifty futures is at 48,600 – its 20day moving average. Below this, potential support levels are at 48,000 and 47,500.

According to the option chain, 49,000 and 50,000 are barriers as calls with these strikes have seen a considerable number of OI outstanding. Similarly, support points are at 48,500 and 48,000.

Strategy: Short Bank Nifty futures with stop-loss at 50,100 if it moves up to 49,300. When it drops below 48,600, modify the stop-loss to 49,300. Revise the stop-loss further down to 48,600 when the contract touches 48,000. Exit at 47,500.

In case Bank Nifty futures slip below 49,000 without moving up to 49,300, go short with stop-loss at 49,800. Trail stop-loss as recommended above.

Alternatively, traders can buy 49000-put when the futures inches up to 49,300 or after it falls below 49,000, whichever occurs first. Exit this trade when Bank Nifty futures falls to 47,500. a good