F&O Tracker: a considerable long liquidation
The Nifty 50 (17,787) and Nifty Bank (40,991) ended the week with a gain of 1.2 and 0.5%, respectively. The difference in gain was due to the divergence in performance on Friday when the Nifty 50 rose while the Nifty Bank depreciated.
That said, the trend in the cumulative open interest (OI) of the futures of both indices on the NSE shows that there has been a long and considerable sell-off, particularly on Friday. While this is not a confirmation of a bearish reversal, it is a cautionary tale for those who are long Nifty 50 and Nifty Bank futures.
Awesome 50: Cumulative OI Nifty 50 futures on the NSE fell to 123 lakh contracts on Friday (the lowest in the past two months) from 159 lakh contracts the previous Friday. Notably, it stood at 174 lakh contracts on Thursday, the highest in the past four months. OI’s huge swing meant that longs sold out with a sense of urgency. The PCR (Put Call Ratio) of the closest weekly options shows that more calls are being written and this means that participants might expect the underlying index to remain with a downward bias.
Clever bank: Nifty Bank futures also saw longs out as the cumulative OI fell to 20.4 lakh contracts on Friday from 23.5 lakh contracts a week ago. Although the drop in OI was not as steep as it was in Nifty 50. That said, the PCR of the closest weekly options is at 0.65. Therefore, participants seem to have positioned themselves for a decline from here.