Stock market strategy: Nifty 50 August series sees low rollovers, but smart bulls buying any minor dips

Stock market strategy: In its analysis on derivative rollovers, brokerage Motilal Oswal Financial Services reported that, on an expiry-to-expiry basis, the July series saw a 9% decrease in open interest (OI) and a 1.5% increase in price, suggesting a short covering move in the index. The Nifty 50's rollover was 69.7%, below both the rollover of the previous two months and its quarterly average of 72.6%.

The brokerage claims that the Nifty 50 index had a strong start to the July series, with bulls controlling the market for the most of the series and reaching a new all-time high of 24,854 levels. Despite some profit booking in the last week, the index had buying activity throughout the most of the series and closed at its highest level ever.

“Nifty 50 formed a Bullish candle on expiry to expiry basis and has been making higher highs from the last nine series,” the brokerage said in its report.

The research report indicates that the maximum put and call options are 24,000 and 23,000 strikes, respectively, while the maximum call option is 25,000 and 25,500 strikes. Put writing may be observed at 2,3000 and 24,000 strikes, whereas call writing can be observed at 25,500 and 25000 strikes. Option data points to a wider trading range in the zones of 24,000 and 25,200.

“Nifty 50 closed near 24,400 zones and At The Money Straddle (Aug Monthly 24,400 Call and 24,400 Put) is trading at net premium of around 740 Points, giving a broader range of 23,660 to 25,140 levels. Considering overall Derivatives activity, we are expecting overall bullish stance to continue in Nifty with a sector rotation and strength in specific pockets. Now it has to hold above 24,350 zones for an up move towards 25,000 and 25,200 zones whereas supports are placed at 24,350 then 24,000 zones,” said Motilal Oswal in its report.

The brokerage has seen buying activity in the majority of sectoral indices, with the metal sector showing some weakness and the auto, IT, pharma, oil and gas, and FCMG sectors leading the way.

The brokerage said that despite the Budget announcements, volatility was low for the most of the series and hovered around its lower zones, indicating that any slight falls were absorbed and that bulls were feeling secure near support levels.

"India VIX decreased by 10.81% from 14.15 to 12.61 levels in the July series," highlighted the brokerage.

In July, foreign institutional investors (FIIs) upped the amount they were buying, purchasing stocks worth a total of ₹14,397 crores. Domestic institutional investors (DIIs) have been purchasing for the last 14 months, and as of July, they had purchased stock worth ₹6,115 crores.

"The FIIs 'Long Short Ratio' in index futures remained at its higher band for most part of the series to later cool off and ranged in between 56.75% to 83.85% to close at its lower band," the brokerage said.

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