Scattered OI holds volatile trading this week
Call writers aggressively building hefty OI at 17,500 & 17,700 strikes; India VIX rises 5.34% to 13.41 level
The resistance level remained at 18,000CE for a second consecutive week, while the support level rose by 400 points to 17,400PE suggesting narrow range of trading. But Open Interest (OI) build-up at ITM and OTM strikes is indicating higher volatility for the week ahead.
The 18,000CE has highest Call OI followed by 17,700/ 17,500/ 17,400/ 17,900/17,600/17,300/ 18,200 strikes, while 18,000/17,800/17,500/17,400/17,550 strikes witnessed significant build-up of Call OI.
Coming to the Put side, maximum Put OI is seen at the 17,400PE followed by 17,000/16,500/16,900/ 16,800/ 16,700/ 17,350/ 17,500 strikes. Further, 17,300/17,400/ 16,500/17,200/16,900 strikes recorded reasonable addition Put OI.
Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: “From derivatives front, Call writers were seen adding hefty Open Interest at 17500 & 17700 strikes, while marginal Put writing was observed at 17,400 strike.”
According to ICICIdirect.com, another round of aggressive Call writing is visible across strikes and 17500 Call strike became the highest option base in just one day’s decline. However, Put bases at 17300 and 17400 strikes also hold significantly higher open interest.
“Once again, bears took the charge over Indian markets, as Nifty & Bank Nifty settled the week with loss of more than one per cent, largely taking cues from weak global sentiments. From sectorial front, banking and financial stocks took a deep cut, while energy counter witnessed short covering over the week,” adds Bisht.
BSE Sensex closed the week ended March 10, 2023, at 59,135.13 points, a net loss of 673.84 points or 1.12 per cent, from the previous week’s (March 3) closing of 59,808.97 points. NSE Nifty ended the week at 17,412.90 points, a decline of 181.45 points or 1.03 per cent, from 17,594.35 points a week ago.
Bisht forecasts: “Technically, Nifty has once again slipped back below its 200-Day Exponential Moving Average on daily charts, which is placed at 17,580 level and now will act, as a strong resistance for index. For upcoming week, markets are expected to remain on volatile path, as tug of war among bulls and bears can fluctuate markets in a broader range with negative bias.”
In the F&O space, near month Futures saw closure of short positions, the April derivatives series continued to witness additions. However, considering the near month OI, marginal shorts rose again in recent weakness. As the index trading below its support levels, noteworthy Call writing action was witnessed during the week. The index would remain choppy till it trades below 41,000 level. Stability is expected once the index moves above this level once again.
India VIX rose 5.34 per cent to 13.41 level. With India VIX still below 14 level, markets are not perceiving major downside risk. Hence, a recovery towards 17,800 can be expected till the Nifty is holding above its recent lows near 17,250 points. While the recovery towards 17,800 in the early part of the week can be attributed to the short covering, FII net short positions fell to 72,000 contracts from 1.31 lakh contracts within few sessions. However, the Nifty failed to witness further action due to lack of follow up from cash based activities.
“The Implied Volatility (IV) of Calls closed at 11.41 per cent, while that for Put options closed at 12.29 per cent. The Nifty VIX for the week closed at 12.73 per cent. PCR of OI for the week closed at 1.26,” said Bisht.
NSE banking index closed the week at 40,485.40 points, lower by 765.95 points or 1.85 per cent from the previous week’s closing of 41,251.35 points. “Bank Nifty has its strong support area at 40,000 zone, below which we may witness fresh round of selling into the prices,” remarked Bisht. The cumulative OI in the Bank Nifty is the highest seen since April 2022 when the HDFC twin merger was announced.