Call OI addition moving to lower strikes

The latest addition of Open Interest (OI) at lower strikes, when compared with previous week, points to undercurrent bearish mode in the market.

The highest addition of Call OI is seen in the range of 11,300-11,500 as against 11,500-12,000 strikes in the previous week.

For the week ended October 4, 2019, the 11,500 strike has maximum Call OI of 24.23 lakh contracts followed by 11,400 and 11,300 strikes.

The highest addition of Call OI of 14 lakh contracts at 11,300 strike followed by 11,500 strike with 11.16 lakh contracts and 11,400 strike with 10.29 lakh contracts.

Coming to the Put side, 11,200 strike has maximum OI of 10.50 lakh contracts followed by 11,000 strike with 10.37 lakh contracts 10,900 strike with 9.67 lakh contracts.

Highest addition of Put OI of 4.62 lakh contracts is seen at 10,900 strike.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities,

observes: "Indian markets extended declines for the fifth consecutive session and ended the week on negative note with Nifty ending below crucial support of 11,200 mark (spot).

From derivatives front, hefty Call writing was observed at 11,300 and 11,400, which should now act as strong hurdle for Nifty in coming week."

BSE Sensex during the truncated week, holiday on October 2 on account of Gandhi Jayanthi, fell 1,149.26 points or 2.96 per cent and closed at 37,673.31 points as against 38,822.57 points.

The stock markets will be closed on Tuesday (October 8) on account of Dasara festival.

Registering a net loss of 337.65 points or 2.93 per cent, NSE Nifty closed the week at 11,174.75 points from the previous week's close of 11,512.40 points.

More than half of Nifty stocks were trading below 200-DMA level. Stocks reel under selling pressure after the RBI policy announcement.

Bisht forecasts that "from technical front, the NSE Nifty has once again slipped below its long term-moving averages which may once again limit any sharp upside into the prices.

For coming week, we expect that volatility is likely to grip the market within broader range of 11,000-11,300 and any decisive move beyond this range will further decide the next momentum into the index."

During the last week, Nifty suffered selling pressure and further fell after the 25 bps rate in the RBI monetary policy.

The index has come to the crucial value area of 11,200, which was the average short price of previous FPI selling. Sustainability above this level is quite crucial for any short covering to pan out.

According to the data on ICICI Direct.com, the noticeable Put base at 11,000 strike. However, some positions at this strike have shifted from higher Put strikes.

The noticeable Call base is placed at 11,500, which means the Nifty may enter into short-term consolidation with immediate support at 11,000.

"The Implied Volatility of Calls was up and closed at 16.68 per cent, while that for Put options closed at 17.65 per cent.

The Nifty VIX for the week closed at 17.70 per cent and is expected to remain volatile. Put-Call ratio OI for the week closed at 0.91," added Bisht.

Bank Nifty

Bank Nifty ended the week at 27,731.85 points, a decline of 2,144.8 points or 7.17 per cent, from previous week's close of 29,876.65 points.

Private bank stocks suffered the most due to selling pressure. The private bank scrips were quite resilient so far.

Axis Bank was the worst performer among private banks whereas there was no respite for PSU banks, which continued their downfall for the current series as well.

Market observers say that FPIs turned negative and began selling in the cash segment. Once the Bank Index slipped below 28,000 level, Call writing positions moved to 28,200 and 28,500 strikes. However, no sizeable additions were seen in OTM Puts. Selling pressure may continue for a while.

The Bank Nifty, according to ICICI Direct.com, underperformed the Nifty due to negative news flow hovering in the sector due to which the price ratio of Bank Nifty-Nifty moved lower.

As the ratio has slipped below its support of 2.50, derivatives analysts feel the underperformance in banking stocks may continue.