Benchmark indices today gained over 3.6 per cent on short-covering in banking and realty stocks and a build-up of long positions in refinery and power scrips. The S&P CNX Nifty closed at 4,505, much above its resistance level of 4,450. It is now likely to target the recent high of 4,650.
Ashish Shroff, a technical analyst at Ambit Capital, however, said momentum indicators pointed towards an overbought position after Tuesday’s move and there could be an intraday decline, going forward. On the upside, the Nifty has resistance at 4,580 and above that at 4,640.
Option traders expect a consolidation in the benchmark index above 4,500 as there was buying at 4,500, 4,600 and 4,700 strike calls, even as puts were written at 4,200, 4,300 and 4,500 strikes. The buying of calls and the writing of puts at the same strike prices indicate that the support for the index has moved up above 4,500 from 4,300 yesterday.
Interestingly, there was a significant jump in trading volumes of call options at 4,800, 4,900 and 5,000 strikes, mostly in the form of short-covering.
With only four trading days gone by in the current series, the call open interest (OI) at 4,800-5,000 strike is substantially high at 2.87 million shares valued at Rs 1,450 crore. The moot question is why someone is taking positions at these levels, which are 7-11 per cent higher than the current index level.
Short-covering and a fresh long build-up were clearly visible in banking stocks. Though the trading volume in these stock futures was up 50-100 per cent, the open interest increased by a mere 10-20 per cent, indicating short-covering and a fresh long build-up.
NSE’s derivatives segment witnessed a sharp 55 per cent rise in the open interest, largely in the form of short-covering and long build-up. The Nifty September series witnessed a trading volume of 38.92 million shares compared with 26.98 million shares yesterday. The volume in Nifty options increased sharply from 567,070 contracts to 882,147 contracts, while the volume in stock futures saw a 55 per cent rise.