Call writers covering short positions
Domestic institutions significantly short in index futures, while retail participants on majorly long bets; FIIs selling index futures and buying in index options
With the gap between highest Call OI base and Put OI base narrowing, the options data on NSE points to range-bound trading with a positive bias for the week ahead (Nov 15-19). The 18,500 strike has the highest Call OI followed by 19,000/18,000/ 18,400/18,300 strikes. Further 18,500/18,300/ 18,400/ 18,450 strikes recorded significant addition of Call OI. The 18,000 strike has a maximum Put base followed by 17,900/ 17,800/17,500/ 17,00/17,000 strikes. The strikes that recorded significant build-up of Put OI include 18,000/ 18,100/ 17,950/ 17,500/17,000/17,100 strikes.
Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers cover their short positions held at 18,000 strike. On the other hand, Put writers added hefty Open Interest at 18,000 strike and held maximum Open Interest of nearly 54 lakh shares."
From an options perspective, 18000 Put strike witnessed significant Put addition for the coming weekly settlement. A move below this may trigger another round of downside in the coming week. However, if the Nifty sustains above 18100, it may continue its positive trend towards 18400 in the coming sessions.
The NSE Nifty suffered selling pressure at higher levels amid volatile trading during most of the week. Global markets are also seeing some volatility after higher than expected US inflation numbers and rising bond yields. Broader markets have consolidated in a broad range as they recover from the lows while both midcap and small cap along with Nifty index gained more than one per cent last week.
For the week ended November 12, 2021, BSE Sensex closed at 60,686.69 points, a net gain of 619.49 points or 1.28 per cent, from the previous week's closing of 60,067.20 points. Registering a rise of 185.95 points or 1.03 per cent, NSE Nifty ended the week at 18,102.75 points from 17,916.80 points a week ago.
Bisht forecasts: "Indian markets recovered sharply as bulls made a strong back in the week gone by. Nifty index once again reclaimed 18,100 level as IT, reality and power stocks outshine the markets. Last week, Nifty managed to close above its 20-day exponential moving average on daily charts which points towards positive bias for upcoming sessions. We expect the index to move towards 18250-18300 levels in upcoming sessions. On the downside now the 18000-17900 zone is likely to provide strong support to markets."
"Implied volatility of Calls closed at 14.14 per cent, while that for Put options closed at 14.99. The Nifty VIX for the week closed at 16.65 per cent. PCR of OI for the week closed at 1.04," remarked Bisht.
The leverage positions in index futures hovering on the lower side. Despite high volatility, no major addition was observed last week and cumulative Open Interest in Nifty futures remained near 1.2 crore shares. Domestic institutions are significantly short in index futures, while retail participants are having majorly long, according to ICICIdirect.com. Similarly, in the stock futures segment, retail participants are primarily having net long positions while both FIIs and DIIs are net shorts in stock futures.
FIIs resumed their selling in equities as they offloaded Rs5,500 crore during the last week. In November, FIIs sold Rs11,800 crores in equities and Rs13,050 crore in October. On the other hand, domestic institutions bought Rs5,075 crore in equities last week, according to data from ICICIdirect.com.
In the F&O space, FII activity concentrated on the index options segment as Nifty largely consolidated. FIIs have sold index futures worth Rs615 crore, while they have sold to the tune of Rs4,322 crore in stock futures suggesting stock-specific approach. At the same time, FIIs bought index options worth Rs7,154 crore.
NSE's banking index closed the week at 38,733.35 points, a net loss of 840.35 points or 2.12 per cent, from the previous week's closing of 39,573.70 points.
Bank Nifty recorded major Call writing at 39,000 and 39,500 strikes. As broader set up for the market seems to be positive, analysts don't predict any major selling in the Bank Nifty. Going ahead, the highest Put base of 38,000 should act as a support.
However, noticeable performance in the index is expected only above 39500 levels. Analysts say that focus should be on midcap banks like IDFC First Bank, Canara Bank and Federal Bank that are likely to give more returns.
The current price ratio of Bank Nifty-Nifty declined to its previous support of 2.14 level. The ratio may continue to hover near 2.14 level as no major outperformance is expected in the Bank Nifty.