Call writers turn active in indecisive market

Indicating undercurrent indecisiveness in the domestic stock market, the futures and options (F&O) data pointed to lowering resistance and support levels by 100 points each to 15,900CE and 15,700PE respectively. The 200-point narrow gap between maximum Call base and Put base is also indicating a range-bound trading ahead. NSE Nifty August month rollover was at 82.76 per cent as against 84.61 per cent to July series and 3-month average of 76.06 per cent.

The rollover cost was 27 points and its indicating longer side rollover mostly. The 15,900 strike has highest Call OI followed by 15,800/16,000/ 16,300/ 16,200 strikes. Further, 15,900/ 16,300/ 15,800 strikes recorded reasonable addition of Call OI. The 15,700 strike has maximum Put base followed by 15,800/ 15,500/15,000 strikes. On put side, 15,700/15,400/ 15,200/ 14,700 strikes witnessed moderate Put OI build-up.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers remained active at 15,800 and 15,900 strikes, while Put writers added marginal Open Interest at 15,500 strike."

The Nifty futures began the August F&O series with an Open Interest (OI) of 0.95 crore shares versus 0.97 crore shares in Open Interest. Bank Nifty August month rollover was 81.26 per cent from 83.88 per cent. The overall market-wide rollover was at 91.82 per cent versus 88.65 per cent.

The August series started with Rs166,551 crore versus Rs154,692 crore in stock futures, Rs15,054 crore versus Rs15,392 crore in Nifty futures and Rs232,374 crore versus Rs196,551 crore in index options and Rs66,518 crore versus Rs58,881 crore in stock options.

BSE Sensex closed the week ended July 31, 2021, at 52,586.84 points, a net loss of 388.96 points or 0.73 per cent, from the previous week's closing of 52,975.80 points. Registering a decline of 93 points or 0.58 per cent, NSE Nifty ended the week at 15,763.05 points from 15,856.05 points a week ago.

Bisht forecasts: "From technical front, secondary oscillators suggest that we may witness volatility in upcoming week with Nifty likely to hover in broader range of 15,500-15,900. Traders are advised to keep focus on sector specific moves for upcoming week."

The OI in the Nifty at the beginning of August derivatives series is one of the lowest that the market witnessed since September 2020. Continued range-bound movement in the index may have caused the current low OI. Analysts predict a fresh directional move should trigger fresh OI build-up in coming sessions.

"After ending July F&O series on muted note, Indian markets began August derivatives series with a negative impression. However, during the week, both the indices once again seen moving in a consolidation mode as sideways moves kept market directionless."

As per the data from ICICI Direct.com, the NSE Nifty closed the July series near its VWAP levels of 15,780 amid significant stock- specific action. The index remained largely in the range of 15,600-15,900 for the last two months. Sectoral rotation was the key where technology and metal space were clear outperformers and compensated for the weakness in banking and auto stocks.

On a monthly basis, while the Nifty closed the month almost flat, mid-cap and small-cap indices gained almost 4% and 8% respectively, suggesting broader outperformance.

The put-call ratio (PCR) for the August derivatives series started at a comfortable level at 1.16, while the volatility index has been continuously inching lower and is hovering around 12-13 per cent.

"The Implied Volatility (IV) of Calls closed at 11.81 per cent, while that for Put options closed at 12.62 per cent. The Nifty VIX for the week closed at 12.95 per cent and is expected to remain volatile. PCR of OI for the week closed at 1.27," remarked Bisht.

Considering significant FII selling, more than Rs19,000 crore in secondary markets, during July series, any change of stance may take the Nifty above its ongoing trading range.

Bank Nifty

NSE's banking index closed the week at 34,584.35 points, a net recovery of 450.05 points or 1.28 per cent, from the previous week's closing of 35,034.40 points.

Bisht further added that "however, Bank Nifty has major support at its 100 days exponential moving average on daily charts, which is placed around 34,000 level. On higher side, index can face strong hurdle at 35,300-35,400 zone."