F&O Insights: FIIs cover shorts in Bank Nifty; 24,600 is the key for Nifty

Derivatives market update: In the last 4 trading sessions, the Nifty and Bank Nifty, both, have witnessed short-covering as prices rose on the back of 20% and 16% decline in open interest.

The Nifty futures rose by 0.4 per cent on Tuesday to 24,711. The August month futures premium further dipped to Rs 12.25 points to 22.75 a day earlier amid lower market volatility. Trading volumes were below average, with around 1.50 lakh contracts traded on Wednesday as against the last 7-day average volume of around 2.63 lakh contracts. 

The overall open interest (OI) in Nifty August declined by 1.8 per cent (7,762 contracts); while it rose by 8.2 per cent (2,290 contracts) in the September series compared to the previous trading session.

Meanwhile, the Bank Nifty futures surged 0.9 per cent yesterday, while OI dipped by 8.6 per cent (17,312 contracts) on Tuesday, largely due to short-covering by foreign institutional investors (FIIs).

Overall, in the last four trading sessions, the Nifty and Bank Nifty, both, have witnessed short-covering. The Nifty OI has dropped by 20.1 per cent, with the index rising 3.2 per cent; while Bank Nifty has risen 1.7 per cent alongside 15.7 per cent decline in OI.

FII, DII trading activity in F&O - Here's all you need to know about who bought and who sold on August 20?

As per data from the NSE, FIIs were aggressive buyers in index futures on August 20. FIIs net bought 26,584 contracts of index futures for a consideration of Rs 1,974.15 crore yesterday. FIIs were net buyers of 265 contracts of Nifty futures and 22,674 contracts of Bank Nifty futures.

Pursuant to which, FIIs long-short ratio in index futures rose to 1.1:1 – this ratio implies that foreign investors now hold more than 1 long position in index futures for every single bet on the short side of trade. The FIIs longs in index futures now stand at 52.42 per cent.

Data shows, that FIIs have cut most of their short positions in Bank Nifty futures. As per the daily buy-sell data since the start of the month, FIIs have net sales of Bank Nifty contracts now stand at mere 2,725; whereas in case of Nifty futures it is 6,173 contracts.

Meanwhile, domestic institutional investors (DIIs) continue to hold near about 2 short positions for every open position on the long side in index futures. DIIs long-short ratio in index futures stands at 0.55:1; with net longs at 35.52 per cent.

Retail traders reduced long bets in index futures marginally on Tuesday. The index long-short ratio now stands at 1.1:1 from 1.2:1 the day before. Retail traders net long in index futures stand at 52.59 per cent.

Nifty, Bank Nifty Options Insights

The Nifty options data signals a bullish outlook, with increased Put writing compared to Calls. Notably, significant open interest is observed at the 25,000 Call (93.98 lakh contracts) and the 24,300 Put (71.05 lakh contracts), with active trading around the 24,500 - 24,600 Puts and 24,700 - 24,800 Calls, said Dhupesh Dhameja, Technical Analyst, SAMCO Securities in a note.

The Put-Call Ratio (PCR) has risen from 0.99 on Monday to 1.13, indicating positive sentiment as the PCR remains above 1. The Max Pain Point, where the most open contracts exist, is at 24,600, serving as a crucial level for the index's movement.

On the Bank Nifty, significant open interest is noted at the 51,000 Call (35.73 lakh contracts) and the 50,000 Put (34.73 lakh contracts). Notable activity is also observed around the 50,800-50,900 Calls and 50,600-50,500 Puts. The Put-Call Ratio (PCR) has risen from 0.76 on Monday to 1.03, indicating a positive sentiment as the PCR holds above 1. The Max Pain Point, at 50,800, remains a key level influencing the index's movement, Dhupesh added.

Bullish & Bearish stocks
 

On Tuesday, ICICI Prudential Life and CoForge saw additions of long positions. In the last 4 days, ICICI Pru Life has gained 2.7 per cent, while the OI has risen by 16.7 per cent. Similarly, CoForge was up 4.5 per cent backed by 13.6 per cent jump in OI.

Among other prominent movers, Balrampur Chini and Motherson Sumi witnessed some long unwinding - meaning exit of long positions; as the former surged 6.6 per cent, while it’s OI dropped by 18.8 per cent, and the latter advanced 1.4 per cent, on a 7.8 per cent dip in OI.

 

What is long buildup and long unwinding? 

In general, a rise in stock price alongside an increase in open position is considered as buildup of long positions. Whereas, on the other hand, a continuous rise in the stock price with a fall in OI is considered winding-up of long positions.

Stocks in F&O ban period

As many as 16 stocks out of the 181 in the futures & options segment are placed in the F&O ban period today. 

Aarti Industries, Aditya Birla Fashion Retail, Balrampur Chini, Bandhan Bank, Birlasoft, GNFC, Granules India, Hindustan Copper, India Cement, LIC Housing Finance, Manappuram Finance, National Aluminium, Piramal Enterprises, RBL Bank, SAIL and Sun TV are the 16 stocks in F&O ban on Wednesday.

Traders are not allowed to take new positions in stocks placed under the F&O ban. Traders are permitted to only exit existing open positions. In case, any new position is opened during the ban period, exchange levies a penalty on every such trade.

As and when the open interest in the stock falls below 80 per cent of the market wide limit, the stock shall be removed from the ban period.