Will the Nifty start moving upward?

On Tuesday, the Nifty fell below the crucial support level of 7,800 to a threemonth low of 7,701. The markets have now fallen for five days in a row. Falling crude, weak trade data from China and the yuan’s weakness have all been cited as major reasons for the fall.

But there is also another reason. FIIs, net sellers in cash for much of the year’s second half, have been selling Nifty call options aggressively for about 26 straight days now.

The concerted selling means FIIs don’t expect markets to move up soon since call sellers face huge losses if an underlier, Nifty in this case, moves up.

Maximum call writing was seen in 7800 strike call on Tuesday. FIIs, rich clients and prop brokers feel Nifty will face major resistance at 7800. Call writing was also seen in 7900 and 8000 strikes.

Buyers of calls were mainly local funds. To add to the bearish mood, FIIs have been net sellers of index futures on a cumulative basis in three days through Tuesday.

Asian stocks hit their three-week lows on Tuesday as the rout in crude oil weighed on commodity stocks and sluggish Chinese trade data rekindled global growth worries.