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Here's why Feb F&O series could be bullish for Nifty; key analysis here

Derivative data shows that Nifty is starting the February series after a 4-month losing streak, high rollovers, and short positions ahead of Budget. Here are the key analyses as per HDFC Securities.

Nifty 50

Nifty 50(Photo: Shutterstock)

Rex Cano Mumbai

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The Nifty futures shed 2.1 per cent in the January series, and in the process logged its fourth consecutive series loss.  According to Nandish Shah, derivative analyst at HDFC Securities, Nifty has till date not logged a 5-month losing streak in the derivative market since the year 2000.  That apart, another key highlight of the February rollover is that foreign institutional investors (FIIs) long-short ratio stands at a record low of 0.13. This ratio implies that FIIs hold 8 short positions across index futures (a combination of Nifty, Bank Nifty and MidCap Nifty) for every long trade in index futures.  HDFC Securities futures & options (F&O) rollover report highlights that the FIIs long-short ratio is at the lowest since October 2023 (beginning of November 2023 series). The fall in ratio indicates a continuation of bearish bias by the FIIs.  Historical trend: What does the 4-month losing streak, low long-short ratio suggest?  The report states that FIIs long-short ratio in index futures is at an extreme oversold level of 0.13; which in-turn suggests higher possibility of a short covering by them and aggressive. Put writing at 23,000 - 23,200 levels indicates that downside is limited in the Nifty and there is a higher possibility of a pullback rally from hereon.  Historically, there are four instances (after March 2020) where FIIs long-short ratio at the beginning of the series stood at or below 0.15 (30-May-2024, 26-Oct-23, 29-March-2023 and 29-Sept-2022). In the subsequent series, Nifty had moved up in all the four series and average gain of Nifty was over 7 per cent.  ALSO READ: Sensex, Nifty PE dips below 10-year average. Time ripe for cherry-picking?  Therefore, considering the historical evidences, there is higher possibility of a short covering by FIIs in the index futures segment in the days to come which could push Nifty higher, says the HDFC Securities report.  Technically, short-term trend turned positive on Wednesday as Nifty crossed its 5-day and 11-day EMA with positive divergence in RSI.  Nandish Shah believes that traders can use any sharp correction towards 22,800 - 23,000 levels on the back of Budget announcements to accumulate long positions with the stop loss of 22,500 levels. A short-covering rally could emerge if the resistances of 23,400 - 23,500 are convincingly taken out.  Upside targets for the Nifty could be 23,800 - 24,000. The downtrend is likely to accelerate once the immediate support of 22,500 is broken, adds Nandish.  ALSO READ: Bajaj Finance, TaMo, Maruti: Largecap buy, sell stock ideas post Q3 results  That apart, historically, there are only four instances in the derivative history (since 2000) where Nifty has fallen four series on the trot. Nifty has never fallen for five series on the trot and therefore history suggest, higher possibility of pull back rally in the February series after four series of consecutive losses, HDFC Securities reported noted.  Against this backdrop, Nandish Shah recommends a 'Long Butterfly' strategy on the Nifty for the February weekly expiry dated 06-02-2025.  STRATEGY: NIFTY LONG BUTTERFLY WITH CALLS (MILDLY BULLISH)  Why Choose This Strategy?  Historical data shows a drop in IVs after budget announcements, making this strategy beneficial. Current options data suggests a tight range of 23,000 - 24,000, aligning with the butterfly's structure. It allows traders to benefit from a mild bullish bias while limiting downside risk.  NIFTY  Lot size: 75  Expiry: 06-FEB-2025  Leg 1 : Buy 1 Lot NIFTY 23000 CALL at Rs 474*  Leg 2 : Sell 2 Lot NIFTY 23500 CALL at Rs 220  Leg 3 : Buy 1 Lot NIFTY 24000 CALL at Rs 74  Max Risk Reward Ratio - 1:3.63  Upper Breakeven Points: 23,892. Lower Breakeven Points: 23,108  Maximum Profit Rs 29,400; If Nifty closes at 23,500. Maximum loss Rs 8,100.  Approx. Margin requirement : Rs 77,000  (All prices as of Thursday Close) 

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First Published: Jan 31 2025 | 9:59 AM IST

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