The close of 4,930 was more of a technical pullback for the Nifty with resistance likely to be around 4,975, which is 38.6 per cent Fibonacci retracement level of the recent fall from 5,310 to 4,766.
The India VIX for February 3 declined sharply by 4.31 per cent to close at 25.54, indicating normal trading sessions ahead. Options traders covered short positions at 4,800-5,000 strike calls on expectation that the pullback may continue for few more sessions.
The 5,100 calls saw change of hands, mostly through buy-side trades, indicating possibility of a fresh pullback. The 5,200 call added 296,300 shares in open interest through buy-side trades, indicating a strong bull rally ahead.
The 4,800 put continued to add significant open interest through sell-side trades while the 4,900 put saw profit-booking and fresh build-up in open interest by put writers. The 5,000 put added 272,650 shares in open interest while there was profit-booking in 5,100 and 5,200 puts. This means bears are unwinding their short positions on expectation of a fresh rally from the current levels.
The trading pattern in the futures and options (F&O) segment suggests short-covering as the Nifty never fell after moving above 4,900 convincingly. The Nifty February futures saw strong support below 4,850 while traders covered their short positions when the Nifty started trading convincingly above 4,920.
Nifty February futures closed at five points discount to the spot and shed 2.29 million shares in open interest despite intra-day build-up of 3.75 million shares in open interest, indicating short-covering by bears. It seems the participants are not convinced of Wednesday’s pullback as Nifty futures and key index stocks such as Reliance Industries, ICICI Bank, Larsen & Toubro rose on short-covering and hopes that the finance minister may take steps to withdraw the stimulus measure only in the next financial year.
