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FII short covering of index futures key to sustaining rally

Covering at this level by strong hands will provide more legs to the rally, said derivatives analysts.

, ET Bureau|
Sep 21, 2019, 08.39 AM IST
MUMBAI: The key support of the market shifted higher amid Friday’s monster rally which trapped the bears. Market analysts said continuity and strength of the uptrend would depend upon FII action, whose average shorting level of index futures since July stands at 11200. Covering at this level by strong hands will provide more legs to the rally, said derivatives analysts.

The 11200 call option expiring on September 26 now has the highest open interest at 30.38 lakh shares. The put with the highest open position is 11000 with 49.65 lakh shares. The range has expanded from 10800-11000 to 11000-11200.

The covering of shorts at the 11200 level is important. Indeed, option sellers had cut open positions only marginally at this level despite Nifty having broken past it to end at 11274 Friday.

“The average shorting price for FIIs since the past three months has been 11200, which the market has struggled to surpass until now,” said Amit Gupta, head of derivatives at ICICI Direct. “If they begin to cover these shorts, the rally could extend.”

FIIs were cumulatively net short index futures — Nifty and Bank Nifty — by 1.23 lakh contracts on Thursday. Figures for Friday were not uploaded by NSE till the time of writing.

“11200 has been a congestion zone for the past three months and once the unwinding of the positions begin we could see a further short-covering rally.”

Nitin Kedia of Kedia Commodity feels that the market could make a new high by December thanks to a slashing of corporate tax rates. The record high made on June 3 is 12103.

Near month Nifty futures witnessed a bullish build up with open interest rising by 24,562 contracts as the price rose 5.5% to 11301. Call option sellers were singed as prices of calls across rose. The 10900 September expiry call price rose over 1500% while that of the 11100 call moved up by a whopping 5200% from Rs 4 to Rs 225 a share. Put buyers saw prices tanking over 90% and were forced to exit at massive losses.

Also Read

FIIs cut bearish positions on index futures, hint at more upside for Nifty

FPIs’ net shorting of index futures may cap Nifty upside

FIIs cut bearish bets on index futures

Tax worries make FIIs go short on index futures

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