F&O Outlook: Shorts are back

The technical pullback fizzled on Wednesday, with the Nifty and Sensex making substantial losses. The current month Nifty futures traded at a discount and added open interest of 33.11 lakh shares, indicating that shorts are back.

Most importantly, the first four trading days of the current contracts have seen a built-up in open interest near the Nifty 4,700 and 4,800 strike prices.

The OI in 4,700 Put has increased by 32.6% to 8.34 lakh shares in four days, while 4,800 Put has witnessed 72.3% increase in OI to 4.46 lakh shares.

The 4,700 Put options witnessed hectic activity on Wednesday, with 6,312 contracts of 50 shares each being traded at a premium of Rs 75 a share. The 4,800 Put options were in demand as 4,817 contracts were traded at a premium of Rs 115.65 a share.

The down side premium of 10-15% on the 4,700 and 4,800 Puts indicated weakness in the near future.

According to Kamlesh Langote of vfmdirect.com, the bounce-back is over and the previous downturn will now continue. Technically, price-wise corrections are followed by time-wise corrections and we are heading for Nifty levels of 4,500-4,600 and 15,500-16,000 on the Sensex.

For the time being, the Nifty has a support at 5,200, 5,100 and 5,000, going by the open interest build-up in Put options at these levels.

Resistance is seen around 5,400, 5,500 and 5,600 levels as there has been Call OI built-up at these points. The Nifty PCR remained unmoved at 1.08, indicating nervousness among the market participants.