TCS share price rises nearly 4%; F&O data points to short covering in near-term futures

Tata Consultancy Services (TCS) shares rose as much as 3.9% to Rs 2,335 on Friday, August 28, recovering after two sessions of losses. The stock, however, remains down about 25% over the past 12 months.

The move came with a sharp increase in trading activity. Volume in TCS was more than twice its 20-day average, according to Bloomberg data, as the broader IT sector also saw strong buying during the session.

The rise in the stock was accompanied by changes in the derivatives market, with the September and October futures contracts showing short covering. The November contract, meanwhile, saw an increase in both price and open interest, pointing to accumulation.

TCS futures show different positioning across contracts

The September TCS futures contract rose 3.24% to Rs 2,343.60, while open interest fell 1.25%. October futures also moved higher, gaining 3.23% to Rs 2,345, even as open interest declined 2.69%.

The combination of a rise in futures price and a fall in open interest in both contracts points to short covering. Traders who had taken short positions appear to have exited as the stock moved higher.

The November contract showed a different setup. Its futures price increased 3.16% to Rs 2,355.50, while open interest jumped 16.04%. A rise in both price and open interest is generally seen as accumulation of fresh positions.

This leaves the near-term and longer-dated contracts showing different trends. While shorts were being unwound in September and October, traders were adding positions in the November contract.

Rs 2,300 strike sees heavy options positioning

The options chain also showed significant activity around the Rs 2,300 strike.

Call open interest was highest at the Rs 2,300 strike, while put open interest was also concentrated around the same level. Put open interest was additionally significant at the Rs 2,800 strike.

The change in open interest during the session showed a sharp reduction in call positions at Rs 2,300. At the same time, put open interest increased at several strikes, including Rs 2,200 and Rs 2,300.

The concentration of both call and put positions around Rs 2,300 makes the strike an important level in the current options setup. The changes in open interest also show that traders were adjusting positions as TCS shares moved higher during Friday's session.

TCS shares rebound after two-day fall

Friday's gain marked a recovery for TCS after the stock declined for two consecutive sessions. Despite the sharp move, the stock continues to remain around 25% below its level a year ago.

The stock's rise was also part of a broader rally in information technology shares. TCS was among the IT stocks that gained sharply during morning trade as the Nifty IT index moved higher.

The combination of higher cash-market volumes and activity in the derivatives segment made Friday's move notable. In futures, the immediate-month contracts saw short covering, while the November contract recorded a sizeable increase in open interest.

For the options market, the Rs 2,300 strike remains a key area of positioning, with substantial call and put open interest and notable changes in both during the session.

TCS shares were trading at around Rs 2,335 after touching the day's high, with the derivatives setup providing additional context to the stock's rebound.

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