Despite positive bias, options band narrowing down

The gap of strong resistance and support levels has narrowed down to 300 points after the trading hours on Friday (December 18) from a wide range of 2,500 points, while the resistance level remained at the previous 14,000 strike. The support level moved to higher bands as the Put writing became more aggressive. Put writers and Call writers were shifting to higher bands. The options data points to increased activity of both the bears and bulls. The highest Open Interest (OI) was seen at 14,000CE and 13,700PE. Derivatives' analysts forecast the current positive bias should continue as long as the Nifty remains above 13,600 points.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Put writers at 13,700 strike supported the Nifty index, while Call writers were shifting to higher bands. This clearly shows a bit of discomfort among bears." The highest concentration of Call OI (33.63 lakh contracts) was at 14,000 strike, followed by 13,800 strike with 22.13 lakh contracts, 14500 strike with 20.96 lakh contracts and 13,900 strike, which also recorded maximum Call OI addition of 10.01 lakh contracts, with 20.10 lakh contracts. Further, 13,800/ 14,000/14,400/ 14,500 strikes witnessed significant build-up of Call OI.

Coming to Put side, the 13,700 strike, which has maximum Put OI addition of 8.53 lakh contracts, witnessed highest Put OI of 23.45 lakh contracts followed by 13,500 strike with 22.01 lakh contracts, 13000 strike with 19.98 lakh contracts and 13,400 strike with 15.72 lakh contracts. The reasonable addition of Put OI was seen at 13,500/13,400/13,000 strikes.

From the options space, as per ICICI Direct.com, the immediate option positions are visible at the ATM 13,700 Put strike, which is the highest Put base for the coming weekly settlement. Continued writing among Put strikes has pushed Put-Call ratio (PCR) levels high and it's enhanced the risk of some intermediate profit booking in the market. On the higher side, the highest Call base for the week is at the 14,000 strike.

Bisht further added that "Indian markets continued their winning streak for the seventh consecutive week with Nifty closing above the 13,750-mark, while Bank Nifty also gained marginally higher with closing above the 30,700-mark. IT and pharma counters supported the gains in Nifty, while PSU banks remained under pressure during the week." For the week ended December 18, 2020, BSE Sensex closed at 46,960.69 points, a net gain of 861.68 points or 1.86 per cent, as against 46,099.01 points. Similarly, NSE Nifty, too, moved up by 246.7 points or 1.82 per cent and closed at 13,760.55 points from 13,513.85 points. Bisht forecasts that "from technical front, secondary oscillators suggest that markets are likely to remain volatile in the coming sessions, while bias should remain in favour of bulls as far as Nifty is holding above the 13,500-mark. On the higher side, the 14,000 strike would act as a key psychological hurdle for Nifty. Any dip into the prices should be used to create fresh longs as bulls are likely to grip the markets." The volatility index, India VIX, remained below 20 level and closed the week near lows. There wouldn't be any major uptick in the volatility index so the current positive bias may continue. "The Implied Volatility of Calls closed at 17.92 per cent, while that for Put options closed at 18.77. The Nifty VIX for the week closed at 19.16 per cent. PCR of OI for the week closed at 1.98 and it indicates more Put writing than Calls," remarked Bisht. In the F&O space, FIIs remained net buyers, but their activity eased off considerably. FIIs sold worth Rs63 crore in index futures, sold Rs848 cr in the stock futures segment and bought index options worth Rs1,350 crore during the last week.

Bank Nifty

The NSE's banking index Bank Nifty closed at 30,714.65 points, a net rise of 109.8 points or 0.35 per cent from 30,604.85 points. Sectorally, the banking index remains crucial for continued move in the Nifty. While technology stocks have seen some reversal and are likely to continue the uptrend, some weakness was seen in the banking index, which is hovering below 31,000 points. A fresh move above these levels may trigger another round of upsides in the banking space. Bank Nifty for the past two weeks was trading in a range where Call writers were dominating and finding it difficult to move above 31,000 points. The stock-specific activity continued where post the QIP news of PNB, the stock fell almost 22 per cent, whereas buying continued in Kotak Mahindra Bank and IndusInd Bank.

As the bulls and bears become active, the options range has also contracted. Due to lower IVs, Put OI additions were seen in 30,500 strike whereas for the second week the highest Call base was at 31,000 strike. Analysts feel more upsides could be seen once the index manages to end above the 31,000 level.