The Nifty closed above 4,700 levels, mostly due to intra-day short-covering in index heavyweights Reliance Industries, ICICI Bank and Infosys Technologies. However, the V-shape recovery in benchmark indices is unlikely to continue as the Nifty may face strong resistance above 4,750 levels.
The Nifty November futures closed at a discount to the spot and shed 2.34 million shares in open interest, mostly through sell-side trades above 4,690 levels, indicating profit-booking at higher levels. In fact, while Nifty futures settled at 4,705, the average traded price stood at 4,656, indicating that traders were not willing to trade in the Nifty at higher levels.
Options traders covered short positions at the 4,600 strike call as they expected that the index might not fall below this level in the near future. Short-covering was seen in 4,700-4,800 strike calls when the Nifty was trading around 4,650 levels. However, traders booked profit in 4,700-4,800 calls at higher premium.
In the end, 4,500-5,200 strike calls together shed 1.78 million shares in open interest despite a trading volume of 35.3 million shares, indicating short-covering at lower levels and profit-booking at higher levels. Interestingly, 4,700-5,000 strike calls together hold 13.48 million shares in open interest, which is 57 per cent of the total open interest in call options. This indicates the Nifty has strong resistance above 4,700 levels and thus we may see range-bound trading in the near future.
Strong support is seen at 4,600 levels as this strike put added 1.32 million shares in open interest and holds the highest open interest among put options. Interestingly, traders booked profit at 4,800-5,000 strike puts as they expected the index might move above 4,800 levels after moving sideways for the next couple of days.