The markets are likely to open on a steady note on Monday. The open interest in as many as eight stock futures declined by over 500,000 shares each and 30 odd futures saw an open interest reduction between 100,000 and 500,000 shares each.
The Nifty breached 4500 on Friday. The options open interest (OI) data suggests that the index has a support at 4400, which has a put-call ratio (PCR) of 2.17. Violation of the 4400 level could, however, drag the index to 4330, which is 38 per cent Fibonnaci retracement of the rally from 3790 to 4650. The Nifty’s next support level is 4300, which has a PCR of 2.41.
PCR is the ratio of the trading volumes of put and call options. It is primarily used by traders as a contrarian indicator. Many traders consider a large ratio as a buying opportunity because they believe that the market holds an unjustly bearish outlook and will soon adjust when those with short positions start looking for opportunities to cover.
The foreign institutional investors (FIIs) spoiled the bull party last week by resorting to all-round selling in the cash and derivatives segments. The FIIs were net sellers in the cash segment for three consecutive days, while they went short in stock futures on four days. In Nifty futures, they build up long positions in the first two days and sold in the next two days.
The fresh short build-up in stock futures wiped out early gains in banking and finance, realty, fertilisers and telecom stocks. The August futures of HDIL declined by 13.7 per cent and the OI went up 40 per cent, IDBI was down 12.4 per cent, while the OI rose 18 per cent, whereas Bombay Dyeing was down 11 per cent on a 27 per cent increase in open interest.