By Anand James
FIIs have boosted their exposure in index options with a positive bias in the last week. On Friday, they ended up with index future long OI almost double that of its 30 day average, while also increasing positions along index call longs. The exposure to Index future shorts and index put longs are way lesser than the 30 day average. Such an increase in positions was not visible along stock futures though. FIIs hold 23% of total OI in index future longs held by all participants, which is a 55% increase from the 30 day average. All of this suggests an increase in interest from FIIs as opposed to lacklustre presence in the previous 10 months. Of the index future positions held by FIIs, longs constitute 58.3%, suggesting we are approaching an overbought situation, but not necessarily an extreme yet.
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The 2 sd range of Nifty projected by the trades of the last 20 days is at 2000 points and Nifty is just 1.6% away from the upper range. Historically such a set up has usually led to corrections. Oscillators are now either overbought or show negative divergence, but they have been so for a while now, which is in line with how oscillators behave during strong uptrends. It is such bear traps that give more legs to the uptrend, with both FOMO as well as short covering chipping in, as it is difficult to pick the top of an uptrend.
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We had gone into last week hoping to find signs that the 18200 trajectory would be intact or not. For this, we were eying the 17570 mark as a crucial point. The manner in which this was taken down last week encourages us to expect that the 17750/830 region, which has disappointed multiple uptrend attempts since November, could be taken down before aiming for 18200. VIX declining sharply from the 20 vicinity to 17.6 did eat away from long strangles and naked traders last week, and with CPI numbers out of the way, option traders would rather stay close to ITM, especially with next week being truncated. Directional traders, meanwhile, would do well to eye the 17835-850 region, as the first objective. Inability to clear, or float above the same after the initial burst could be seen as a sign of weakness setting in.
(By Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)
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By Anand James