Nifty Futures and Nifty Bank Futures Show Increased Short Positions in Recent Activity
In the world of stock market trading, the past week has seen a significant shift in the trend for Nifty and Nifty Bank futures.
The Put Call Ratio (PCR) of the weekly options for both Nifty and Nifty Bank stood at 0.5 and 0.85 respectively, suggesting a bearish trend. This means traders have been selling twice the amount of call options compared to put options for Nifty Bank, and nearly twice as many put options compared to call options for Nifty.
The chart analysis corroborates this trend. The chart of Nifty futures shows a lower high formation and strong bearish momentum, while the September futures for Nifty Bank has slipped below the support at 54,200, signaling a bearish signal. The underlying Nifty Bank has breached the key base at 54,000.
The open interest for Nifty Bank futures has seen a substantial increase, rising from 4.7 lakh contracts to nearly 29 lakh contracts. Similarly, the outstanding open interest for Nifty futures increased from 31 lakh contracts on August 22 to 167 lakh contracts on August 29, indicating a considerable short build-up.
However, the PCR of monthly options is currently at 1.20, potentially indicating a more optimistic outlook.
Current strategies suggest shorting Nifty Bank futures (September) at 54,100 and 54,600, with a stop-loss at 55,000. For Nifty futures, the suggested strategy is to short September now at 24,570 and 24,750, with an initial stop-loss at 25,000. The stop-loss should be trailed to 24,450 when the contract slips to 24,300, and further tightened to 24,250 when it declines to 24,150. Profits should be booked at 24,000.
In case of recovery, the contract will face resistance at 54,600 and 55,000 for Nifty Bank, and at 25,000, 25,300, 25,500, and 25,750 for Nifty. A clear breakout of 55,000 is needed to turn the outlook for Nifty Bank futures bullish, and a decisive breach of 25,300 is needed to change the outlook to positive for Nifty futures.
Alternatively, traders can buy put options for Nifty Bank, with a suggestion to go long on 54000-put of September series at ₹600 and ₹450. After touching 24,000, there might be some recovery, possibly to 24,300 for Nifty futures. Potential supports for Nifty Bank futures are at 53,800 and 53,000.
It's worth noting that there is no available information on why the person behind the Nifty Bank gave up a short position last weekend or when exactly this happened.
Traders with higher risk appetite can revise the target upwards to ₹500 for the Nifty Bank put option trade, as there is more room for a rise in premium. Given the current chart set-up, the contract is likely to see further decline to 24,000 for Nifty futures.
Last week, Nifty Bank futures (September) closed at 54,060, losing 2.7%, while Nifty futures (September) lost 1.9%, closing at 24,569.
