The Nifty50 broke below its crucial support level of 7,500 in morning trade on Monday, but managed to claw back above that level quickly.
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NEW DELHI: The Nifty50 broke below its crucial support level of 7,500 in morning trade on Monday, but managed to claw back above that level quickly. The index has defended this level twice in the past six months and has, therefore, thus become an important level for traders.
Going by the options activity, strike price 7,500 has maximum concentration of Put OI at 58.91 lakh contracts. In case the market goes below this level convincingly, further downside towards 7,450-7,400 levels is possible.
But fresh support has already started building up around those levels. Fresh Put writing was seen at 7,400 (4.86 lakh contracts added) and 7,300 (3.90 lakh contracts added) levels.
However, total Put OI at strike price 7,400 stood at 38.94 lakh contracts, while for strike price 7,300, the total Put OI stood at 38.23 lakh contracts.
"Both Nifty50 and Bank Nifty futures saw subdued activity. A downward shift was seen in Put writing from 7,700, 7,600 to 7,400, 7,300 levels. Call writing too shifted downwards to 7,600, 7,700 levels," said Bhavin Desai, Head of Derivative Research, MOSL.
"Put writers at strike price 7,500 are trying to provide support. However a breach of the same can cause the index to slide further. On the upside, the immediate hurdle still remains at 7,800," he said.
Going by the options data, fresh Call writing was seen at strike prices 7,700 (5.59 lakh contracts were added), 7,800 (5.95 lakh contracts added) and 7,900 (8.17 lakh contracts added).
Fresh Call writing at lower strike prices may pose fresh challenges for the index on its way up. Total Call open interest at strike price 7,700 stood at 34.30 lakh contracts while strike price 7,800 had 46.49 lakh contracts. But, it is still less than the OI seen at higher strike prices.
How to trade:
The movement of Nifty50 last Thursday was quite critical. The fact that it tested the 7,557 level and managed to close above this point (on Thursday and Friday) gives hope that the market could sustain at these levels.
The index needs to negate the negative pattern of forming lower tops-lower bottoms by holding above 7,676 level to see a bounceback towards 7,750 and 7,777 levels.
"If the index fails to sustain at the 7,550 level, the hope of a bounceback move may fizzle out and selling pressure might drag the index towards the 7,450 level," said Chandan Taparia, Derivatives & Technical Analyst - Equity Research at Anand Rathi Financial Services.
On the options front, maximum Put OI was at 7,500 followed by strike price 8,000, whereas maximum Call OI was at strike price 8,000 followed by 8,200.
"Traders have built up huge positions in Call options at 8,000 and 8,200, which makes us believe that the fall in market may halt and perhaps there could be a recovery backed by short covering," said Karthik Rangappa, Vice-President, Education & Research - Zerodha.
"We would advise traders to open fresh long futures position at 7,605 with a stop loss at 7,545," he said.
Desai of MOSL recommends investors to make fresh short trade at this juncture can also be taken using OTM bear put spread.
F&O Trends:
Price rise with the rise in open interest suggests long buildup. Here is a list of top stocks where long positions are building up.
Price fall with the rise in open interest suggests short buildup. Here is a list of top stocks where short positions are building up.
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