Why a Hidden Bearish Bias May Exist in Nifty Despite Bullish Option Chain | 22 May Expiry Case Study

Praveen Kumar | viecapital.blogspot.com

Markets often present a paradox: while surface-level data looks bullish, smart money moves reveal a different story. The Nifty option chain for the 22 May 2025 expiry seems tilted towards the bullish side — but a closer look at FII option positions hints at a possible bearish undertone. Let’s decode this with a practical, trader-centric analysis.

Option Chain Snapshot (As of 19 May 2025)

• Highest Open Interest (OI) at 25,400 CE
  Premium: ₹27.15
  OI: 46.26 lakh contracts
• Moderate OI at 23,200 CE
  Premium: ₹1,838.35
  OI: 7,725 contracts
• Futures Premium
  Nifty Spot: ₹24,945.45
  Nifty May Futures: ₹24,965.00 (Premium ₹19.55)

At first glance, this OI buildup at higher Call strikes suggests bullish sentiment. But is it genuine buying? Maybe not.

What FII Data Tells Us

As per Participant-wise Open Interest data:

• FIIs hold significant short positions in index options Calls (CE) at higher strikes.
• Simultaneously, there’s a gradual increase in Put buying at ATM and slightly OTM levels.
• The futures premium remains unusually narrow (₹19.55) — not a sign of aggressive long buildup.

This suggests FIIs might be using call writing strategies to cap upside and buying puts as a hedge against a possible short-term reversal.

Why This Matters for Traders

Even though the general option chain hints at a bullish bias:

• High OI at far OTM Calls with falling premiums often signals call writing activity, a bearish sign in disguise.
• A flat or narrow futures premium despite market strength shows lack of institutional conviction.
• When FIIs turn net long in Puts while writing Calls, it hints at institutional hedging or a cautious outlook.

Key Takeaway

Don’t trade purely by surface option chain numbers. Always cross-check with FII position data. This divergence is often a precursor to surprise market moves — especially near major expiries like 22 May 2025.

Trading Strategy Suggestion

• Watch for signs of intraday short covering rallies towards 25,000–25,200.
• Use strength to build bear call spreads or ATM/OTM put long positions if FIIs continue increasing put positions.
• Keep an eye on India VIX movement — a rise despite market gains will confirm smart money’s defensive stance.

Stay sharp, stay informed. More expiry-specific derivative insights coming soon at viecapital.blogspot.com.