F&O Outlook: Short covering in Nifty futures

The market moved in a narrow range on Monday amid stray incidents of profit booking in the large cap stocks. The Nifty closed at 5,276.90, down 26 points, with 22 advancing and 28 declining stocks. The Sensex declined 67.2 points, with an advance decline ratio of 11:19.

The heartening development during the day was short-covering in Nifty futures. The Nifty futures discount came down to four points from nine points on Friday as the open interest in February futures contracts declined by 2,512 contracts despite trading volumes of 4.10 lakh contracts.

The Nifty open interest has declined by almost 10% in the last five trading sessions. However global cues will continue to have a major influence on the market direction.

The indices may advance further and touch the immediate resistance levels of 18,450 - 18,550 for Sensex and 5,450 - 5,500 on the Nifty.

The support for Nifty has now shifted to 5,200 from the earlier 5,000, indicated by trading in 5,000 and 5,200 Put options. The open interest in 5,200 Put has increased further by 11.6% to 11.65 lakh shares.

Call options buying are seen at 5,300 and 5,400 strikes, while profit booking was noticed at 5,500. The 5300-5,400 strike calls have witnessed sharp buildup, accompanied with rising implied volatility.

The Nifty PCR has increased to 0.91 from 0.89 due to unwinding in out-of-money put options as the writers booked profits and IVs declined from 68% to 42%. Some of these put writers are now active in options of 5,200 and 5300 strike prices.