The Nifty opened on a positive note but closed in the red on profit-booking at higher levels. Capital goods and telecom stocks fell but real estate and metal stocks remained firm on fresh buying. The market breadth was negative in contrast to a strong breadth earlier in the day. The Nifty futures & options saw a decline in open interest (OI), indicating profit-booking by bulls.
The Nifty October futures closed at a discount to the spot and shed 1.10 million shares in OI, indicating that bulls have started booking profit. The Nifty November futures, which saw a strong long build-up in the last couple of days, witnessed profit-booking at higher levels as they added 0.46 million shares in OI despite a trading volume of 1.35 million shares. The November futures also closed at a discount to the spot, indicating that bears have started creating short positions.
Profit-booking was seen in 4,700-5,000 strikes calls while a strong OI build-up was seen in 5,100-5,200 strikes calls. Interestingly, the OI in Nifty 5,100 call options increased by 1.39 million shares at close, though it had declined in intra-day trade. Bloomberg data suggest that 50 per cent trading in 5,100 call options was through sell-side trades and 44 per cent through buy-side trades. This means the bears have started writing 5,100 call options as they expect the Nifty will face strong resistance above 5,100.
Traders unwinded their short positions at 4,900, 5,000 and 5,100 puts as these added OI of 1.65 million shares through buy-side trades. The sharp decline in OI in the 5,100 put suggests that traders expect the Nifty to face resistance above 5,100.
