1. What's in store?
The current series of options expires on August 25. A large num ber of buyers of these options are at 8700 and 8800, going by their outstanding positions (open buy positions).
Interestingly , the almost 1% rise on Friday was driven by a fair bit of short covering across these two options strikes. Short covering means those who sold these options (to the buyers) covered their shorts by buying them back at a loss or to pre vent a potential loss. This indi cates that the markets could break 8700 in the near term quite convincingly .
2. Where could Nifty head?
Going by the call options data, 8762 could be broken in the next few days through August 25. On Friday , the price of the 8700 op tion rose 35% to close at `62.55 which means buyers will make money if Nifty crosses 8762.55 by expiry . Over the series some are even betting that 8829 could be tested. That's a rise of al most 2% in Nifty till August 25.
3. What reinforces this possibility?
There was short covering across strikes right from 8600 to 9100 of call options.
The open interest (outstanding positions) of 8700 declined by 4.87 lakh shares to 45.71 lakh shares; OI of the 8800 call slipped by 5.7 lakh shares pushing the option price up by 39%. Sellers of the options are worried these levels could be breached, subjecting them to huge losses. So, to either pre-empt losses or to cut them sellers have bought back the shares.
4. What's the chance of a correction, going by options data?
Largest concentration of shares is at 8500 put. Price of the option is 25.45 as of Friday closing. This means Nifty has to break below 8475 for buyers to make money .The option witnessed fresh addition of 26,250 shares on Friday . Other strike at 8600 witnessed fresh selling of 8.6 lakh shares. The sellers are selling these puts in the belief Nifty won't breach below 8550 (the strike minus the option price at `50 at Friday close) by expiry .So, the chances of Nifty rising than falling till August 25 look brighter as of now.
5. What's a call and put option?
A call option (in this case) is a purchas er's bet that Nifty will rise above a cer tain strike plus premium paid. A put option is a purchaser's bet that the index will fall below a certain price plus premium paid.
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