F&O expiry outlook August 25: Good time to book profits, market in overbought zone with support at 17800-17700

Now the technical readings have reached the overbought zone, and the stronger hands first show signs of long

F&O expiry outlook August 25: Good time to book profits, market in overbought zone with support at 17800-17700
Looking at the data, it seems a good time to book profits on long positions ahead of the monthly expiry and take some money off the table.

By Ruchit Jain

After ending the last weekly expiry around 17600, the Nifty continued its momentum during this week to rally further and is now a tad away from reclaiming the 18000 mark. The indices continued to attract long positions which provided an impetus to the up-move. The relentless run-up continues for the market as the Nifty has almost reclaimed the 18000 mark within a short period post the recent swing lows. 

From the lows, the initial up move was mainly due to short covering and we have witnessed long formations in this series which have lifted the markets higher. While long positions are still intact, we have not seen any intermediate corrections due to the lack of short selling. FIIs started this series on a positive note and have added long positions. However, they unwound some of the longs and formed short positions on the weekly expiry day. They now have a ‘Long Short Ratio’ at 53 per cent which was around 60 per cent a day ago. On the other hand, the Client segment too has long positions around 53 per cent. 

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In the last few days, we have not seen any short addition or any unwinding of positions which has supported the market. Now the technical readings have reached the overbought zone, and the stronger hands first show signs of long unwinding. Also in the week gone by, we saw many call writers unwinding their positions as the market continued to move higher thus forcing them to square off their positions. In the monthly series, 18000 call and 17800 put now have the highest open interest outstanding.

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Looking at the data, it seems a good time to book profits on long positions ahead of the monthly expiry and take some money off the table. However, since the recent momentum has been very strong, one can wait for some confirmation of price-breaking crucial support levels to take contra trades. The immediate support zone is placed at 17800-17700 below which, the index could see a corrective phase again. Conversely, 18100-18200 will be seen as an immediate resistance zone.  

(Ruchit Jain is the Lead Research at 5paisa.com. The views expressed are the author’s own. Please consult your financial advisor before investing.)

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