The benchmark indices closed on a flat note in choppy trade as investors were indecisive. The flat close technically means a Doji pattern, which indicates weakness and hence we may see a sharp correction in the market.
The Nifty closed at 2,714, up six points, while both the Nifty futures closed at a discount indicating that the bears continue to hold their short positions.
The Nifty January futures closed at 23 points discount to spot and shed OI of 1.58 million shares, while the February futures closed with 26 points discount to spot and added OI of 3.27 million shares. This indicates that F&O operators have unwound their long positions in the January futures and built up short positions in the February series.
There was a build-up in 2,600, 2,700 and 2,800 call options and unwinding in 2,900 and 3,000 call options. This means that the traders expect the Nifty to be rangebound and may trade between 2600 and 2800 in the current series, which will expire on January 29.
The OI at 2,800 and 2,900 puts declined considerably today indicating that writers were unwinding their shorts at these strike prices. There was also a build-up in 2,600 and 2,700 put mostly through buy orders indicating hedging of long positions in the Nifty futures.
The 2,500 strike puts of February series was actively traded today and added OI of 226,900 shares suggesting that the players are expecting near term weakness in the market.
Reliance Industries, the private sector petrochemical giant, witnessed short covering at lower levels. RIL’s January futures declined in OI, while February futures added OI of 664,200 shares. There was significant put writing at Rs 1,110 and Rs 1,140 and call writing at Rs 1,170 and Rs 1,200 indicating that the stock has limited downside risk and upside gains from the current price level of Rs 1,135.