There has been unwinding and short-covering by the derivatives players. The options writers unwound their 3700-3900 put options on Wednesday and 4000-4100 calls on Thursday.
Short-covering took place in the 4200-4300 calls on Friday as the open interest declined by 600,000 shares despite trading volumes of 6.7 million shares. There was also a decline in the put open interest at the 4100-4200 strike prices.
Options writers act contrary to the prevailing trend and therefore put and call writing indicate support and resistance levels respectively.
The Nifty July futures contracts continue to trade at a discount as some shorts initiated by FIIs and some bear operators are yet to be covered. These contracts witnessed short covering in intra-day trading and in the close-out deals after market hours.
The Nifty July futures contracts saw trading volumes of 41 million shares on Friday, which were 20 per cent higher than the open interest of 34.3 million shares. The open interest at the end of the day was only marginally up by 25,000 shares, despite the high trading volumes. This shows that bears covered their short positions.
The short-covering during the week in July Nifty contracts saw the open interest decline from a high of 42 million shares on July 8 to 34.3 million shares.
