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F&O data denotes minor pullback amid weak OI buildup

F&O data denotes minor pullback amid weak OI buildup
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Highlights

The highest Call Open Interest (OI) at 11,000 and further build-up of OI at 11,500 and 12,000 strikes giving enough room for continuation of pullback, albeit in a narrow range, triggered in Friday session.

The highest Call Open Interest (OI) at 11,000 and further build-up of OI at 11,500 and 12,000 strikes giving enough room for continuation of pullback, albeit in a narrow range, triggered in Friday session.

However, Put OI build-up is indicating immediate support at 9,500, which seems to be weaker, and a strong support at 9,000 strike. If Nifty slips below these support levels, then a further freefall is expected, observe derivatives analysts.

Put-Call OI is indicating a wide range options band of 9,000-11,000 points. Considering the huge volatility in the market, India VIX rose to the highest level since 2008 global financial crisis, a wide range of fluctuations including modest pullback are likely in the wake of negative undercurrent tone, said the analysts.

High implied volatility (IV) of Puts at 52.5 is further confirming the uncertainty and declining support levels. Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "India VIX also rose to the highest level since 2008 global financial crisis as fear gripped markets worldwide after Covid-19 was declared a 'pandemic.'

In coming week, we expect that volatility is likely to grip the Indian markets and once again we can witness huge swings into the index. From technical front, both the indices, however, closed well below their 200 days exponential moving averages and likely to remain under pressure as oscillators are suggesting limited upside into the prices."

Generally, pullbacks would occur after 20-30 per cent decline. The same is panning out currently in the domestic markets. The current pullback may extend towards 10,500 in coming weeks.

On the other hand, the short covering trend may continue in oversold stocks. The sectors, which are suffering from coronavirus outbreak, may witness a recovery if the markets turn stable.

The NSE Nifty declined sharply during the week and hit the lower circuit. The pullback was equally sharp and the Nifty witnessed a recovery to the tune of 1,600 points from the circuit level.

Highest Call OI of 12.96 lakh contracts was seen at 11,000 strike followed by 11,500 strike, which recorded maximum OI buildup of 7.05 lakh contracts, with 9.11 lakh contracts and 12,000 strike with 8.66 lakh contracts.

Coming to Put side, highest OI of 12.05 lakh contracts was recorded at 9,000 strike, which also witnessed maximum OI addition of 5.80 lakh contracts, followed by 9,500 strike with 6.01 lakh contracts and 8,100 strike with 7.15 lakh contracts. Further Put OI build up of 2.57 lakh contracts was seen at 8,800 strike.

The Nifty futures recorded big discounts to the extent of shorting taken place in the index. The Bank Nifty has seen the same structure and could witness further short covering if the global markets remain stable and the coronavirus spread remains under some control.

Since the Put options base is at 9,000 strike and it should act as good support on declines. Derivatives analysts expect that Nifty may hover at this level for some more time.

For the week ended March 13, 2020, BSE Sensex closed at 34,103.48 points, a huge fall of 3,473.14 points or 9.24 per cent for the week ended February 28, 2020, from the previous close of 37,576.62 points.

Similarly, NSE Nifty too declined by 1,034.25 points or 9.41 percent, and closed the week at 9,955.20 points as against last week's at 10,989.45points.

"Taking cues from weak global markets, Indian markets hammered down badly in the week gone by with Nifty and Bank Nifty hitting their lower circuit for the first time after 2008 due to concerns on account of coronavirus.

However, on the other hand, both the indices also witnessed their record intraday recovery as well with Nifty once again reclaiming 9,950 level after testing lows of 8,530. Despite sharp recovery from lower levels, Nifty and Bank Nifty ended the week with loss of more than nine per cent," added Bisht.

"The Implied Volatility of Calls closed at 47.73 per cent, while that for Put options closed at 52.50 per cent. The Nifty VIX for the week closed at 51.47 per cent and is expected to remain volatile. PCR OI for the week closed at 1.06," said Bisht.

Bank Nifty

With a fall of 2,635 points or 9.44 per cent for the week, Bank Nifty closed at 25,166.45 points as against 27,801.45 points.

The banking index further got dragged lower for a third consecutive week as it closed the week more than nine per cent lower.

Bank Nifty at two-year low as relentless selling pressure hammered down leading banks like HDFC Bank, Axis Bank, SBI and Kotak Mahindra Bank. The banking index has corrected almost 36 per cent from its highs, the worst since 2015.

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