Nifty Stuck in a Tight Range; Where is it Going Next?

  • Stock Market Analysis

The Nifty has been giving a headache to market participants for the last couple of weeks now. The benchmark index has been alternating between a gap-up and a gap-down opening, making a ruckus amongst active traders. For instance, the Nifty 50 fell over 3.83% in the week ended 14 May 2022, while it soared 3.07% in the next week, which ended 21 May 2022.

Amid heightened volatility, traders are looking for a firm signal to gauge the upcoming trend, however, it seems like they need to wait for some time to get a clear direction in the Nifty. Currently, the benchmark index is stuck between a wide range of 16,400 on the upside and 15,700 on the downside (spot levels). 

The importance of these levels can be gauged by the fact that the Nifty 50 tried 4 times on the upside and almost 4 times on the downside to breach the respective levels but failed. Aggressive traders have been playing this range for a while now, by buying near the support and selling or going short near the resistance, which is a perfect strategy for a range-bound market. Unless the Nifty 50 breaches one side decisively with an uptick in traded volume (in the futures market), a broad range with high volatility would keep troubling trend followers. 

Nifty chart

Image Description: Daily chart of Nifty, depicting a broad range of 16,400 - 15,700

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Looking at the options chain data, the highest number of call options were being sold at exactly the 16,400 level, with the open interest (OI) of over 20.55 lakh shares, including over 23k shares being added today. The next resistance for this expiry is at 16,500, having the second-highest OI of over 20.16 lakh shares.

On the downside, the put option sellers seem to be a bit aggressive, as the highest number of put options with 16.42 lakh shares are being sold at 16,200, which is an at-the-money (ATM) level. A very high OI in an ATM put near expiry indicates very high confidence among bulls. The second-highest OI in the put option is roughly the same, at 16.27 lakh shares at the 16,000 strike price.

Traders need to be cautious while making any positions in the Nifty as heightened volatility, overnight gaps, geo-political tensions, unstable global markets and ongoing selling spree by FIIs may lead to a tough time for them. 

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  • Praveen Kumar Mukriyantavita @Praveen Kumar Mukriyantavita
    thanks for the article. already trapped in last Thursday 300 point gap down. Tough time to trade . no clear direction until today
    Like 5
  • ravibabu avvari @ravibabu avvari
    Options selling will be good in this market scenario. Sell when you like buy, buy when you like sell is the correct process in this range bound market.
    Like 4

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