The Nifty tested the support level of 4,910 and later recovered on the back of strong openings in European markets and firmness in Dow Jones futures. Telecom stocks tumbled on profitability concerns while buying in FMCG, metal and banking shares helped indices register decent gains by the end of the day.
However, despite a 120-point recovery in Nifty futures from the day’s low of 4,918, it is difficult to say that the worst is over. The trading volume in Nifty futures rose sharply due to profit-booking and possibly creation of short positions at higher levels.
The volume in 5,000-5,100 strikes calls and 4,900-5,000 puts rose sharply, mostly due to change of hands and short-covering. Traders booked profit and created short positions when the Nifty started trading above 5,000. The intra-day trading pattern suggests the Nifty may see fresh profit-booking above 5,050.
Nifty October futures continued to trade at a premium to the spot but shed 123,600 shares in open interest (OI) despite a trading volume of 38.46 million shares, indicating unwinding of long positions. The Bloomberg data suggested that traders booked profit at every level, which is why though the futures closed at 5,039, average trades changed hands at 4,980 levels.
Profit-booking happened across all call options, except 4,900-5,000 strikes calls. The 5,000 strike call options added 437,450 shares in OI, mostly through sell-side trades, indicating creation of short positions. The 5,000 put saw unwinding of short positions as OI in this put declined by 587,250 shares, mostly through buy-side trades.
Bloomberg data suggested traders were buying the 4,900 put on expectation that Nifty might face strong resistance at 5,000 and might even fall below 4,910. The change of hands was visible in the 4,700 put options as OI in this put rose only 99,800 shares despite an intra-day trading volume of 5.08 million shares.