F&O Tracker: Significantly long liquidation

The Nifty 50 (17,787) and Nifty Bank (40,991) ended the week with gains of 1.2 and 0.5 percent, respectively. The difference in profit was due to the divergence in performance on Friday as the Nifty 50 moved higher while the Nifty Bank depreciated.

That said, the trend in the cumulative Open Interest (OI) of futures of both indices on the NSE shows that there was a significant long liquidation, especially on Friday. While this is not confirmation of a bearish reversal, it is a warning to those long on Nifty 50 and Nifty Bank futures.

Nifty 50: Cumulative OI Nifty 50 futures on the NSE fell to 123 lakh contracts on Friday (lowest in the past two months) compared to 159 lakh contracts on Friday before. Notably, it stood at 174 lakh contracts on Thursday, the highest in the past four months. The massive swing in OI means the longs were liquidated with a sense of urgency. The PCR (Put Call Ratio) of the closest weekly options shows that more calls are being written, meaning participants can expect the underlying index to maintain a downward trend.

Nifty Bank: Nifty Bank futures also went long as the cumulative OI fell to 20.4 lakh contracts on Friday versus 23.5 lakh contracts a week ago. Although the decline in OI was not as sharp as it was in Nifty 50. That said, the PCR of the closest weekly options is 0.65. Therefore, participants seem to have positioned themselves on a decline from here.

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Published on October 29, 2022

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