F&O Outlook: Fresh Build-Up Of Short Positions - Sep 13, 2008

The Nifty is consolidating in the range of 4,380-4,520 and has to close above 4,520 for a further rally. If the index closes below 4,380, the next support is at 4,280. According to technical analysts, support of 4,380 is crucial for the overall market as key averages are trading around this level.

The F&O data for the day suggest that the index is losing its support at 4,400, but has strong support at 4,300. Traders were seen writing calls and buying puts at the 4,400 strike price, indicating that they expect the index to crack below the 4,400 level. Put were written at the 4,300 strike (open interest (OI) up by 1.88 million shares), indicating strong support.

Nifty futures continued to trade at a premium, but they have been adding open interest in a bearish market. Though the Nifty September futures series declined by 74 points on Wednesday, its OI increased by 2.21 million shares, indicating a fresh short build-up.

The Nifty is struggling to get near the 4,500 level in a few trading sessions despite foreign institutional investors (FIIs) covering their short positions in the index futures. FIIs have covered short positions in the index futures by 19,784 contracts, but increased shorts in stock futures by 63,000 contracts in the last two days.

Option traders have been writing calls at the 4,500 strike, thereby strongly emphasising resistance for the index in the or short term. The call OI at the 4,500 strike is at 4.96 million shares, while the put OI at the same strike is at 1.50 million shares. This indicates a put-call ratio (PCR) OI of a 0.30, which is more favourable to bear operators