F&O data hints minor consolidation
Volatility may increase amid renewed undercurrent weakness; PCR of OI at 1.32 indicating Put writing
Options data indicates resistance level for NSE Nifty declined to 12,000 last week from 12,500 strike a week ago, while support level remains at 11,000 strike. The highest Call Open Interest (OI) was seen at 12,000 strike and maximum Put OI at 11,000 strike after the trading hours on Friday (October 16). The broad-based index NSE Nifty recorded major volatility last week.
Despite trading with a positive bias for most of the week, the Nifty gave away all the gains during the weekly settlement. From the highest Call base of 12000 strike, it breached most of the Put bases and closed at 11,762 level, declining almost 300 points in a session.
Global weakness due to stalemate in fresh US stimulus and fears of renewed lockdown in Europe kept markets under pressure. Derivatives analysts predict that if Nifty slips below 11,700 level, a fresh round of weakness can be expected towards 11,400. However, the Nifty may consolidate above 11,700 due to ongoing result season amid stock-specific movements.
The 12,000 strike has maximum Call OI of 30.37 lakh followed by 12,500 strike with 26.99 lakh contracts, 11900 strike with 23.96 lakh contracts and 12,200 strike, which recorded highest Call OI of 7.20 lakh contracts, with 19.02 lakh contracts. 12400/12300/ 12200/11800 strikes witnessed reasonable addition of Call OI.
Coming to the Put side, the 11,000 strike has highest Put OI of 22.72 lakh contracts followed by 11,700 strike, which recorded maximum Put OI addition of 8.13 lakh contracts, with 17.49 lakh contracts, 11500 strike with 14.16 lakh contracts and 11,600 strike with 13.64 lakh contracts. Further, 11200/11000/11500 strikes recorded significant Put OI build-up.
The long build-up was seen in Ashok Leyland, JSW Steel, Tata Motors, Tata Power, Cipla and Hero MotCo, etc, while long unwinding took place in Asian Paints, PVR, Nestle, PNB, Godrej, Reliance, etc.
"Call writers were adding hefty Open Interest at 11,800, 11900 & 12,000 strikes with marginal Put writing at 11,700 strike. For upcoming week, 11700 level would act as major support for Nifty, while 11,850-11,900 zone would be crucial resistance. We may witness further long unwinding in Nifty till 11,500 levels, if somehow 11,700 levels gets breached," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.
"After gaining for two consecutive weeks, Indian markets took a breather and ended last week on negative note with Nifty ending below 11,800 mark. Traders were seen booking profit at higher levels," added Bisht.
For the week ended October 16, 2020, BSE Sensex further rose by 526.51 points or 1.29 per cent and closed at 39,982.98 points from the previous close of 40,509.49 points.
Similarly, NSE Nifty gained 151.75 points or 1.27 per cent, to end the week at 11,762.45 points as against last week's 11,914.20 level.
Bisht forecasts: "From the technical front, we may some negative divergence on secondary oscillators, which could cap any sharp upside into the prices. We advise traders to remain cautious, if Nifty breaches 11,700 level on downside. The focus on stock-specific action should be on radar for upcoming week."
According to ICICI Direct.com, the volatility index remained largely in the range of 20-22 levels in the last two weeks and the analysts expect the same may continue. With the approaching US elections, volatility is likely to move gradually higher from current levels with a resistance near 24 level in the coming week.
"The Implied Volatility of Calls closed at 20.51 per cent, while that for Put options, it closed at 21.69. The Nifty VIX for the week closed at 22.06 per cent. PCR of OI for the week closed at 1.32 up from the previous week indicating Put writing," remarked Bisht.
In the F&O space, FII sold worth Rs842 crore in index futures and to the tune of Rs3,327 crore in the stock futures, while they bought Rs1,414 crore in index options during the week
Moving further up by 313.55 points or 1.31 per cent, Bank Nifty closed at 23,533.25 points as against the previous week's closing of 23,846.80 points.