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Options data points to strong resistance levels

India VIX declines 4.55% to 12.94 level; Significant option writing at ATM strikes

Options data points to strong resistance levels
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Options data points to strong resistance levels

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The options data on NSE after trading hours on last Friday (July 6) holds 15,800 strike as resistance level for a consecutive second week, while the support level at 15,000 strike continued for four weeks in a row. The 15,800 strike has the highest Call OI followed by 15,700/ 15,900/ 16,200 strikes. Further, 15,700 strike recorded maximum Call OI addition along with 15,800/ 16,000/16,200/15,800 strikes. Coming to Put side, 15,000 strike recorded the highest Put base followed by 15,700/ 15,400/ 15,600/15,500 strikes.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers remained active at 15,700 and 15,800 strikes, while Put writers held maximum Open Interest at 15,600 strike."

The first week of the July derivatives series remained lacklustre. Despite positive US equities, emerging markets remained under pressure as the Dollar index moved sharply higher.

As per ICICI Direct.com, trading in Nifty futures remained muted last week as well. However, FIIs created fresh shorts in the index, while their net longs declined from 90000 contracts to just 56,000 contracts since June settlement. Hence, some short bias from FIIs is building up.

"Bears tried to keep Indian markets under pressure and Nifty indices once again could not manage to breach the key psychological level of 16,000 points and closed near the unchanged line on a week on week basis. However, metal and banking counters along with mid-caps gave support to markets in the week gone by."

BSE Sensex closed the week ended July 9, 2021, at 52,386.19 points, a net loss of 98.48 points or 0.18 per cent, from the previous week's closing of 52,484.67 points.

Registering a minute decline of 32.4 points or 0.20 per cent, NSE Nifty ended the week at 15,689.80 points from 15,722.20 points a week ago.

Bisht forecasts: "Technical indicators suggested that volatility is likely to grip markets in the coming week as well. Nifty is likely to face strong hurdle at 15,850 level, while 36,000 level for Bank Nifty would remain crucial. On the downside, the 15,550-15,500 zone is likely to provide support."

Due to continued range-bound movement and declining IVs, option writers hold maximum positions at ATM strikes. For the coming week as well, 15700 Put and 15800 Call hold the highest option base where 15800 Call holds more than 40 lakh shares. Derivatives analysts believe the result season may provide some trigger to move out of the prevailing range of 15600-15900 levels.

"The Implied Volatility (IV) of Calls closed at 12.56 per cent, while that for Put options closed at 14.07 per cent. The Nifty VIX for the week closed at 13.56 per cent. PCR of OI for the week closed at 1.32," remarked Bisht.

India VIX fell 4.55 per cent from 13.80 to 12.94 level. India VIX continued to move lower and declined sharply in the last few sessions. From the reading of above 15 seen during the June settlement, it has declined near 12 in just over a week, indicating significant option writing at ATM strikes, according to data from ICICI Direct.com. A small trigger can infuse sharp volatility where a directional move of 3-4 per cent can't be ruled out.

Bank Nifty

NSE's banking index closed the week at 35,071.95 points, a net loss of 262.05 points or 7.52 per cent, from the previous week's closing of 34,809.90 points. The Bank Nifty remained under pressure since mid-May due to aggressive Call writing in most private banks. However, the July F&O series acted as a turning point where the index managed to close at a six-month high. Broad based participation was seen from most private banks whereas PSU banks continued their upward journey, says ICICI Direct.com.

Bank Nifty recorded a sharp reversal on expiry day and managed to hold firm above its sizable Put base of 35,000 points. Despite sharp moves in Implied Volatility, volatility remained choppy due to which option writers are shifting position towards ATM strikes.

The OI in the Bank Nifty remained lower since July. However, in the last two days, it saw addition as the index reverted from 35,800 points. ICICI Direct.com observes that short positions formed in the index. Once it manages to close above its sizable Call base of 36000, aggressive covering is expected.

Despite a sharp reversal from higher levels, OI position in 35000 and 34500 Puts remained intact. For the week, highest OI buildup is placed at 34500 strike, which remains the strong support. Till the index does not violate this level, outperformance in banking stocks should continue, added ICICI Direct.com.

F&O Trading

Product Contracts Turnover (Rs/cr) Premium (Rs/cr)
Index Futures 2,97,036 24,786.49 --
Stock Futures 5,89,410 48,099.22 --
Index Options 3,17,23,540 31,04,534.44 15,069.19
Stock Options 18,11,163 1,55,421.40 2,813.36
F&O Total 3,44,21,149 33,32,841.55 17,882.55


Dasari Sreenivasa Rao
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