Call writers unwinding positions

The offloading by Call writers pulled the resistance level lower by 500 points to 18,000CE, while the support level moved up by 400 points to 17,800 level. This is indicating a narrow range of trading and consolidation mode for the market, forecast derivatives analysts.

The 18,000 strike has the highest Call OI followed by 18,500/ 17,900/18,100/ 19,000 strikes. Further, 18,500 / 18,000/ 18,200/ 18,300 strikes added reasonable Call OI. Coming to Put side, the 17,800 strike recorded maximum Put OI followed by 17,700/ 17,900/ 17,600/ 17,500/ 17,400 strikes. Strikes 17,,900/17,700/ 17,600/17,500 strikes witnessed moderate build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, the Call writers were seen unwinding their positions at 17,800 & 17,900 strikes, while Put writers were seen shifting at higher bands."

Considering the recent Put and Call writing activity, Nifty's consolidation in the 17,500-18,000 range is very much likely before crossing a mark of 18,000 points. Thus, long positions are expected if Nifty sustains above 18,000 or move near the support levels of 17,400-17,500 points. If Nifty slips below 17,800 points, then the ongoing range bound movement will be intact and it'll turn profitable for Short Strangle writers.

"Bulls made a strong comeback in Indian markets as NSE Nifty posted record closing in the week. Recovery was seen post RBI policy as PSU banks led the market gains along with auto and IT space," adds Bisht.

For the week ended October 8, 2021, BSE Sensex closed at 60,059.06 points, a net recovery of 1,293.48 points or 2.20 per cent, from the previous week's closing of 58,765.58 points. Registering a rebound of 363.15 points or 2.07 per cent, NSE Nifty ended the week at 17,895.20 points from 17,532.05 points a week ago.

Bisht forecasts: "Technically, both the indices (Nifty and Bank Nifty) can be seen trading in a rising channel with formation of higher bottom pattern. For upcoming week, the 18,000 level will act as a strong hurdle for Nifty, while we expect that the bias is likely to remain in favour of bulls as far Nifty holds 17,600 level on downside."

India VIX eased 3.11 per cent to 15.65 level. The volatility index may decline, but it is still above 15.50 level. It suggests that market participants are cautious at higher levels. PSU banking, auto ancillary and chemical stocks may see some resilience.

"Implied volatility of Calls closed at 14.19 per cent, while that for Put options closed at 14.88. The Nifty VIX for the week closed at 16.16 per cent. PCR of OI for the week closed at 1.47," remarked Bisht.

FIIs remained active during the last week as they bought Rs2,850crore. On a monthly basis, FIIs remained net buyers in the secondary markets to the tune of Rs2,400crore. On the other hand, domestic institutions bought Rs3,000crore in equities last week.

As per the data from ICICI Direct.com, in the F&O space, FII activity concentrated in the index options segment. With the Nifty witnessing high volatility at higher levels, FIIs remained cautious in index futures. While they were net buyers in index futures worth only Rs50 crore, they sold to the tune of Rs879 crore in stock futures. At the same time, FIIs bought index options worth Rs10,950crore.

Bank Nifty

NSE's banking index closed the week at 37,775.25 points, a net loss of 549.35 points or 1.47 per cent, from the previous week's closing of 37,225.90 points. "The 38,000 level would act as a strong barrier for the banking index," observes Bisht.

Several banking stocks are hovering near their highest Call bases. Any move above these Call bases will be crucial for banking to perform. The 38,200 should be a critical level and sustainability above this may open doors for fresh upsides.

According to ICICI Direct.com, for the current weekly expiry, major Put writing was observed in 37,000 strike, which remains the key support area for upsides to continue. Current month Bank Nifty futures witnessed 10 per cent closure in two instances and now the OI in the future is almost at a three-months low. This should be considered positive as leverage positions have come down and fresh accumulation is expected to form above its sizable Call base of 38200 levels.