Rollover data clearly indicates that the banking index is very light on positions and fresh build-up in coming days will decide the further trend in the banking index.
The December series started with a good amount of positions as the rollover from November series was higher than its average. After decent rally in November expiry, we witnessed some selling pressure in the first week of December series.
The Nifty 11,000 Call writers defended their territory and as a result, Nifty failed to cross 11,000 mark twice in the month.
The index moved in a broader range of 650 points throughout the month and eventually ended the December expiry with loss of 0.73 percent over its November expiry close.
In the December series, we witnessed mixed positions getting formed in the Nifty and some of them got rolled to the January 2019 series as the open interest (OI) increased by 13.66 percent on expiry-to-expiry (EoE) basis.
The rollover in Nifty stood at 74.27 percent, which is above its quarterly average of 69.85 percent. Looking at the fall in Roll cost, we are sensing that shorts are getting rolled to the next series and market participants refrained to take an aggressive bet on the long side in the market.
Foreign institutional investors (FIIs) also formed mixed positions in index futures in December series, but they exited most of the positions on expiry day.
However, FII activity remained subdued in the cash market segment. On the other hands, DII bought equities worth Rs. 2643 crores in December series.
On the options front, 10,800 - 11,200 call writers are active; while we are witnessing good amount fresh positions getting formed in 10,400 - 10,800 and 10,000 put options in the January series.
Highest open interest in January series is placed at 10,500 & 10,000 put, and 11,000 & 11,200 call options, respectively.
Looking at above derivative data, we are expecting Nifty to trade in the broader range of 10,450 to 11,100 for coming few weeks and significant build-up on either side will decide the further trend of the market.
The BankNifty continued its outperformance for a third consecutive month. The BankNifty corrected in the first half of the December series on the back of long unwinding.
But, we witnessed good amount of long positions getting formed in the banking index after the outcome of state election results.
However, participants exited all the positions formed in the last few months as the open interest of BankNifty has decreased by 41.14 percent on month-on-month basis. The open interest in BankNifty is at the lowest level in the last seven years.
The rollover in BankNifty (64.13%) is below its last three months average of 72.17 percent. Rollover data clearly indicates that the banking index is very light on positions and fresh build-up in coming days will decide the further trend in the banking index.
After tremendous outperformance by BankNifty in last three months, the ratio chart of BankNifty/Nifty is now indicating a possibility of underperformance in the BankNifty in coming days.
In the last four occurrences, we witnessed underperformance in the banking index against the Nifty once the mentioned ratio reaches to 2.49 – 2.52 level.
At the current juncture, this ratio is around 2.50 level, which is providing us with a pair trade opportunity (Buy Nifty & Sell BankNifty) for short term.
On stocks front, we witnessed the huge amount of long positions getting rolled in stocks like PC Jeweller, BEML, Repco Home, Reliance Communications, Bata India, Bank of India, Kaveri Seed Company, Kajaria.
While, stocks which added a good amount of shorts in December series and the same got rolled in next series are Sun Pharma, Jet Airways, Reliance Infrastructure, Bharat Forge, Aurobindo Pharma, Oil India, JSW Steel.
The author is a Technical & Derivatives Analyst at Centrum Broking. This note is just an interpretation of derivative data and not trading advise.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.