As expected, the benchmark indices opened down and moved in a narrow range as traders preferred to hold their positions at lower levels. The fall was attributed to a sharp decline in prices of Bharti Airtel, Reliance Industries, Reliance Communication and State Bank of India stocks. Traders bought Nifty futures and options (F&Os) at lower levels and so it is expected that the market may open on a steady note tomorrow.
Nifty October futures, after trading at a discount to the spot in the last three days, closed at a premium, indicating short-covering at lower levels. Bloomberg data suggest more buy-side trades below 5,025 and sell-side trades above 5,035. This means traders were covering short positions when the Nifty was trading below 5,025 and booking profits at higher levels. The October futures closed at a five-point premium and shed 760,250 shares in open interest (OI), indicating short-covering by bears.
Despite a gap-down opening, traders bought 5,100 and 5,200 strikes calls as they expected the Nifty to bounce back above 5,200. The 5,100 call added 906,650 shares in OI while the 5,200 call added 482,800 shares in OI, mostly through buy-side trades. The 5,300 call options continued to add OI through sell-side trades, indicating strong resistance for the Nifty.
However, the trading pattern in Nifty put options suggests that some F&O traders expect the Nifty to lose the 4,910 support and fall below 4,800. Traders sold the 5,000 strike put options and bought 4,900-4,800 puts, probably to hedge short positions at 5,000. Interestingly, the 4,700 put added 919,450 shares in OI, mostly through buy-side trade, as traders expected the Nifty might move down sharply if it closed below 4,910.