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Nifty At All-Time High. What Options Data Indicate

Despite a remarkable up move in market, foreign institutional investors (FIIs) were net sellers in index future segment with rise in open interest, indicating formation of short positions by them in index futures on Wednesday.
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9,300 is likely to act as a strong support for Nifty, says analysts.
9,300 is likely to act as a strong support for Nifty, says analysts.

Indian equity markets ended at a record-high on Wednesday as a fresh monsoon forecast suggested India would receive 100 per cent rainfall (compared to 96 per cent earlier) in 2017, giving a positive factor for the markets to move forward. With Nifty closing above the 9,400 mark for the first time, meaningful long build-up was seen in both Nifty and Bank Nifty. Nifty futures added 14.5 lakh shares to open interest on Wednesday while the Bank Nifty saw a 4.74 per cent increase in open interest suggesting a fresh long build-up.

Although the record closing in Nifty may trigger some fears among traders, options data suggests that bulls have tightened their grip on the markets. 9,300 and 9,400 put options added 16.1 lakh and 11.9 lakh shares with maximum open interest of 76.8 lakh shares concentrating at 9,300 put, which suggests 9,300 is likely to act as a strong support in case of any corrections. Meanwhile, bears (call writers) rushed to cover short positions in 9,300 and 9,400 call options with open interest falling 18 per cent and 20 per cent respectively in these options. Most of the shorts have now shifted to 9,500 call options as it added 8.5 lakh shares to open interest. The put call ratio or PCR also rose to 1.22 from 1.14 suggesting bullish outlook of options writers.

Despite a remarkable up move in market, foreign institutional investors (FIIs) were net sellers in index future segment with rise in open interest, indicating formation of short positions by them in index futures on Wednesday, Jay Purohit, technical and derivative analyst at Angel Broking, wrote in a note.



However, FIIs bought a good amount of stock futures and index call options, and went short on index puts, which on the contrary is a positive sign for market, Mr Purohit added.

Among individual stocks, Bharti Airtel, Hindustan Unilever, Zee Entertainment, M&M and Kotak Mahindra Bank saw fresh long additions while Auro pharma, Reliance Industries, HDFC and Cipla witnessed short covering.

The overall derivative setup indicates that Nifty's range is likely to be 9,300-9,500 for next few sessions. "Considering overall derivative activity, we are expecting the Nifty to trade in the range of 9300 to 9500; wherein we may see a continuation of optimism in individual stocks. Hence, traders are advised to trade with positive bias till Nifty holds its support zone of 9250 - 9300 level," Mr Purohit said.



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