Call writers at lower band indicating narrow upside

Nifty was gyrating mostly in the range of 9,000-9,150 points. Options Open interest (OI) is depicting significant activity in both Call and Put strikes indicating that writers are active. In The Money (ITM) Put of 9,100 was witnessing OI buildup.

The staggered futures and options (F&O) data indicates a possible huge swing in next few sessions and this is not providing any clear picture for index traders.

The NSE Nifty suffered significant losses in the last session on account of profit booking following weak global cues. The sectoral action was seen in select pharma and FMCG stocks whereas profit taking was seen in BFSI, metals and technology stocks.

Derivatives analysts opined that the May 21 weekly series option structure indicates the same trend seen in the last two weeks. According to ICICI Direct.com, the highest Put base is at 9,000 and Call base is at 9,500. This would be the trading range for the week ahead, maintained analysts.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, the tug of war between bulls and bears kept the markets in range of 9,000-9,500 levels during the week. However, Call writers were seen shifting to lower band, which indicates limited upside into the index as of now."

The 9,500 strike recorded maximum Call OI of 17.27lakh contracts followed by 9,400 strike, which witnessed highest OI addition of 5.46 lakh contracts, with 15.21 lakh contracts and 9,300 strike with 10.14 lakh contracts. The 9,400-9,500 strikes recorded significant Call OI addition.

Coming to Put side, the 9,000 strike has highest Put OI of 9.62 lakh contracts followed by 8,500 strike with 8,25 lakh contracts and 8,800 strike with 7.50 lakh contracts. The 8,600 strike recoded highest Put OI addition of 2.97 lakh contracts. The 9,000/9,100/8,700/8,600/8,000 strikes witnessed Put OI addition of over two lakh contracts.

"Indian markets witnessed see-saw moves in the week gone by and settled with marginal losses with mixed sentiment. Selling pressure was seen in banking, auto and reality sector, while pharma counters supported the markets up to some extent," added Bisht.

For the week ended May 8, 2020, BSE Sensex closed at 31,097.73 points, a net loss of 544.97 points or 1.72 per cent, from the previous close of 31,642.70 points.

Similarly, NSE Nifty too declined by 114.65 points or 1.23 percent, and closed the week at 9,136.85 points as against last week's at 9,251.50 points.

Bisht forecasts that "on higher side, 9,300-9,400 levels would act crucial resistance for Nifty, while slide below 9,000 levels would add further selling pressure into the markets."

India VIX eased 0.17 per cent to 38 level as against 51 a month ago and from 52-week high of 86.6 level.

"The Implied Volatility of Calls closed at 33.42 per cent, while that for Put options closed at 34.86 per cent. The Nifty VIX for the week closed at 38.18 per cent and is expected to remain volatile.

Put-Call ratio of OI for the week closed at 1.14 down as compared to last week at 1.28, which indicates more Call writing than Put.

At the current juncture, traders should remain focused on stock-specific moves and are advised to trade cautiously tracking global markets as volatility is likely to grip the domestic markets in the coming few sessions as well," remarked Bisht.

Nifty futures closed at a premium of one point with a drop in IV by 1.8 per cent. The Nifty (futures) is expected to trade between 9,000 and 9,500 amid high volatility. FPIs sold index futures worth Rs1,328 cr and bought Rs1,502 cr in index options.

In the stock futures segment, FPIs sold Rs692 cr. FPIs sold Rs2,152 crore, while DIIs bought Rs802 crore in the cash segment.

Since the domestic markets had already priced in the stimulus package, the key indices didn't rally much after the announcement of the Rs2lakh crore package.

However, the markets may take cues from the concerns emerging over the lockdown 4.0 and how it's shaping up in the days to come. The uncertainty is looming large over the domestic bourses," observed the analysts.

Bank Nifty

Declining by 518.95 points or 2.68 per cent for the week, Bank Nifty closed at 18,833.95 points as against 19,352.90 points. The banking index faced resistance to close above the 20,000-mark since May 5, 2020.

The Bank Nifty in last session opened sharply lower and remained under pressure throughout the day. It witnessed a sharp decline as relentless selling was seen in leading private as well as PSU banks.

By looking at the weekly options data at ICICI Direct.com, it indicates the trading range of 18,000-20,000 for Bank Nifty.