Derivatives outlook : Nifty April rollover at 67% highest since Jan

Futures and options (F&O) April series began on March 29 with a positive bias as Nifty and Bank Nifty included strong roll and incremental long positions. Gains in BNFC, metal and cement stocks added to this.

However, NSE Nifty was up 0.14 per cent with Open Interest (OI) was down by 1.53 per cent, while Bank Nifty ended flat with OI down by 0.4 per cent. Aggressive long positions propelled Nifty recovery, but investors should take note of declining OI as well, alert derivatives analysts, while advising that traders need to focus on managing risk though bulls were active of late.

Indicating highest rollover since January 2019, Nifty rollover was at 67 per cent for April series. The 11,700 strike has highest Call OI of 1,212,600 contracts followed by 11,900 and 12,000 strikes.

On the Put side, 11,500 has highest OI of 1,119,00 contracts followed by 11,600 strike. The 11,500 strike holds the relative higher Put base and should remain immediate support.

On the higher side, positions have been formed at 12,000 Call, while the index should eventually start moving towards these levels in the week ahead.

"We have seen long rollover to April series. Average rollover price is in the range of 11,500 to 11,600. Smart recovery was seen led by short covering from lower levels.

Calls writers covered their short positions and Put writers were actively selling Puts. Maximum Put Open Interest buildup of more than 21 lakh shares is at 11,500 Puts, which should act as strong support zone.

Next week is most likely to trade in the range of 11,500 to 11,700 with positive bias. Nifty has multiple strong supports at lower levels. Various supports are 11500 & 11450 spot levels.

Option Put writers were active in recent rally. We have seen Put writing in 11500, 11400 strikes," said Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

Despite the higher rollover cost in the March expiry week, the 67 per cent April series rollover is higher than last three-month average of 62 per cent. Because, the market participants are willing to pay the higher spread for Nifty futures in anticipation of continuance of recovery in the April series, observes the analyst.

"In stock futures, we have witnessed highest rollover in UBL, GSFC, IDBI, TorntPower and Hexaware, while lowest rollover seen in Adanient, Britannia, HDFC Bank, Idea and AmarajaBat.

Sector specific higher side rollover has been seen in fertilizers, cement and agro chemicals while telecomm and gas distribution sectors observed least rollovers," maintained Bisht.

The Implied Volatility (IV) of Calls closed at 14.20 per cent, while that for Put options closed at 14 per cent. The Nifty VIX for the week closed at 16.65 per cent and is expected to remain sideways.

The volatility has risen of late on account of closure of positions of Call writers. Hence, the volatility should decline on the back of higher Put writing in Nifty, which may lead to higher base formation in the index.

For the week ended March 29, 2019, NSE Nifty closed at 11,623.90 points, a net gain of 167 points or 1.45 per cent, from previous week's closing of 11,456.90 points. Gaining 508 points or 1.33 per cent the week, the BSE Sensex ended the week at 38,672.91 points from previous weeks at 38,164.61 points.

"Among Nifty Call options, the 12,000-strike Call has the highest Open Interest of more than 20 lakh shares, and in Put side 11500-strike put has the highest Open Interest of over 20 lakh shares in Open Interest respectively.

The PCR OI for the week closed up at 1.17 which indicates OTM Put writing. On the technical front 11500-11450 spot levels is strong support zone and current trend is likely to continue towards 11700-11750 levels," forecasts Bisht.

Bank Nifty

Bank Nifty ended the week at 30,426.80 points, a gain of 844.3 points from 29,582.50 points in the previous week. The Bank Nifty recorded long rollovers as the Open Interest is at a six-month high despite surge in rollover cost to 140 points on the back of long positions being carried forward to the April series.

According to ICICI Direct.com, the huge OI open at 30,000 and 29,800 Put strikes, the outperformance in the banking space should continue. In case of any profit booking, Put writers are likely to provide cushion.

It expects the index to remain above 30,000 strike. The current-price ratio of Bank Nifty-Nifty has moved above its two-year highs and made a new life-time high.