Bank Nifty monthly derivatives rollovers fell to the lowest in three years in May, as traders unwound long positions ahead of election results, and even built some short positions. The Bank Nifty final rollovers were at 68 percent, with a roll cost of 1.1 percent. This was significantly lower than its 3-month average of 78 percent, and the lowest in over three years, since April 2021.
What does this mean for the markets?
Traders have unwound their positions ahead of a significant event. “The key takeaway from the rollover analysis indicates that fresh long positions were not established in the Bank Nifty for the June series. Instead, position unwinding has occurred, and some short positions have been built up,” said Soni Patnaik, Assistant Vice President of Derivative Research at JM Financial.
“Many retail investors are reluctant to take any bets, and in the event of unfavourable election results, the markets could correct,” she added.
While volatility index VIX is high at 24, volatility is expected to cool off post-event. “To protect against any slight miscalculations in election predictions, short positions have been established to play towards that correction,” added Patnaik.
Nifty rollovers
Nifty rollovers increased to 59 percent one day before expiry, with a roll cost of 0.5 percent, compared to 56 percent at the same time in the last series.
Bank Nifty derivatives view
Bank Nifty has begun the June 2024 series with the highest Open Interest (OI) on weekly expiry concentrated equally at the 49,000 and 51,000 call option (CE) strikes, each with 0.49 lakh contracts. On the put options (PE) side, the highest OI is at the 49,000 strike, with 0.41 lakh contracts, followed by 0.33 lakh contracts at the 47,000 strike.
"Bank Nifty needs to cross the 49,000 mark on a weekly closing basis to show strength and potentially retest its previous all-time high and break above it. However, failing to do so and a break below 48,000 will lead to serious profit booking," said Patnaik.
She advises remaining cautious as Bank Nifty witnesses the unwinding of long positions. According to the rollovers data, Bank Nifty is expected to underperform Nifty in the upcoming series, she added.
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