Nifty August futures contracts are trading with a premium of around 50 points whereas September futures is currently at a premium of 180 points.

After some profit-taking, the index has resumed its upward journey, with the Open Interest (OI) in benchmark index futures showing an uptick. To put it in numbers, the OI stands at about 6.33 lakh contracts compared to around 5.5 lakh at the start of the series.

The OI stands at 5.9 Lakh contracts for the August series.

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Bank Nifty Performance

After a period of underperformance, Bank Nifty is beginning to show some signs of stabilization. The ratio (Bank Nifty/Nifty) which was at 2.2 at the start of the previous series is now at 2.06. Going forward, the expectations are that this underperformance will halt. The sector had lagged but is now poised to capitalize on the other sectors’ momentum. This shift is underpinned by the rising FII Net Index Long exposure and optimism in the financial sector.

FII Activity

The Foreign Institutional Investors (FII) Net Index Long exposure has risen to approximately 66%, up from 57% at the beginning of the new series. Apart from that, they bought worth Rs 25,000 crore in the cash segment in July month. This indicates a growing confidence among institutional investors in the market’s upward trajectory.

Support and Resistance Levels

The critical support level for Nifty is at around 24,500-24,600. A decisive close below this range could indicate a potential downside. The Volatility Index (VIX) for Nifty is currently around 13, with an expected range of 11-16 moving forward. This suggests a relatively stable volatility environment for the near term. This stability is crucial for executing strategies like short straddles/strangles, which rely on the market remaining within a specific range.

The Volume Weighted Average Price (VWAP) for Nifty is around 24,450-24,550, marking this range as a key level to watch. For Bank Nifty, the VWAP is around 50,700-50,800.

Other indications are also in favour of Bank Nifty ceasing its underperformance and could start performing well.

Trading Strategy and Sector Outlook

A dip towards the 50,700-50,800 range for Banking Index should be viewed as a buying opportunity, with a stop loss set at 50,200.

Sector-wise, all sectors have been doing well on a rotational basis. Starting from Banking, Auto, and Metal and then the baton passing onto sectors like IT, FMCG & Pharma.
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Going ahead, we believe, Banking, Metal and Chemicals to be strong performers within Nifty.

Strategy: Short Straddle

A recommended strategy for Nifty is a short straddle. This involves selling the Nifty 8th August 24,950 Put Option (PE) at 180 and selling the Nifty 8th August 24,950 Call Option (CE) at 190. The combined spread of 370 has a target of 200 with a stop loss at 460.

Conclusion

The August series for Nifty futures presents a bullish outlook, supported by increasing Open Interest and a potential shift in Bank Nifty’s performance. Options Data also suggest the same. The recommended short straddle strategy offers a tactical approach to trading in a moderately volatile environment. Banking, Metals and Chemicals sectors emerge as strong contenders within Nifty, offering promising trading opportunities.