Futures and options data signals consolidation for Nifty

The reduction in Open Interest (OI) ahead of January F&O series expiry on coming Thursday and Union Budget-2020 is indicating short covering at lower levels. The futures and options (F&O) data holds a wider options band of 12,000-12,400 range. The last two sessions of the previous week witnessed a modest recovery in a volatile trading, which may continue further ahead of the derivatives expiry on January 30, 2020.

The 12,500 strike has maximum Call OI of 37.11 lakh contracts followed by 12,300 strike with 30.64 lakh contracts and 12,400 strike with 25.87 lakh contracts. Highest Call OI addition of 3.04 lakh contracts was seen at 12,350 strike and 12,450 strike with 2.72 lakh contracts. Coming to Put side, 12,000 strike recorded highest OI of 42.89 lakh contracts followed by 12,200 strike with 38.17 lakh contracts and 11,800 strike with 24.36 lakh contracts. Highest Put OI addition of 10.60 lakh contracts was seen at 12,200 strike followed by 12,250 strike with 8.97 lakh contracts and 12,150 strike with 6.21 lakh contracts.

After dipping to 12,100 points from 12,400 level, the Nifty recouped the losses in the last two sessions of the previous week as strong buying support recorded near 12,000-12,100 levels. It also suggests that the index may continue its positive consolidation in coming weeks, observe derivatives analysts. "Indian markets slide sharply last week with Nifty shedding nearly 0.91 per cent and Bank Nifty fell more than 1.24 per cent week on week basis to end the week in red zone. However, some relief rally was seen in Thursday's session after three-day consecutive fall as sentiments got lifted by banks and auto stocks,

"From derivative front, now 12,000 and 12,100 should act as major support for the Nifty as Put writers seen adding hefty Open Interest build up in January 30, 2020, expiry. However, on higher side Nifty can test resistance at 12,500 with 37 lakh shares Open Interest outstanding followed by 12,300 with Open Interest outstanding 30 lakh. On sector front, last week highest Open Interest buildup seen in power generation and oil refineries whereas maximum shed in Open Interest seen in auto ancillaries and banking, which indicates short covering in sector." The Implied Volatility (IV) rose in the major part of the week, while the volatility index hit the major hurdle of 16 per cent. A reversal in the volatility index from these levels has provided a cushion to the market. The market participants have also formed hedging positions before the crucial event, which also led to an increase in volatility.

"The Implied Volatility (IV) of Calls closed at 15.64 per cent, while that for Put options closed at 16.10 per cent. The Nifty VIX for the week closed at 16.36 per cent and is expected to remain volatile. PCR OI for the week closed at 1.05. In coming week, we believe that traders should remain cautious as far index is concerned as volatility is likely to grip the market ahead of upcoming Union Budget and as far levels are concerned Bank Nifty is likely to take support at 30,750-30,500 zone and on higher side 31,700 would act as strong hurdle," said Bisht. For the week ended January 24, 2020, BSE Sensex closed at 41,613.19 points, a net loss of 332.18 points or 0.79 per cent, from the previous close of 41,945.37 points. NSE Nifty fell by 104.1 points or 0.84 per cent and closed the week at 12,248.25 points as against last week's 12,352.35 points.

"From technical front, as well we believe that as far Nifty is trading in range of 12,100 to 12,300 the bias is likely to remain range bound with stock-specific action onto the radar," forecasts Bisht.

Bank Nifty

With a net loss of 348.9 points or 1.10 per cent for the week, Bank Nifty closed at 31,241.75 points as against 31,590.65 points. The current price ratio of the Bank Nifty-Nifty bounced marginally after falling for 10 sessions. The Bank Nifty manages to move above 31,500, outperformance in the banking space will pick up pace.

According to ICICI Direct.com, the Bank Nifty index recorded closure of OI from 1.49 million to 1.36 million shares indicating short covering. As the index managed to move above 31,000, closure was seen in ATM Calls, while positions moved to 31,500 and 32,000 strikes. Put writing positions are seen at 31,000 strike indicating major support. Analysts forecast that the volatility will remain high due to rollover activity with target price for Bank Nifty pegged at 32,000 level.

By Dasari Sreenivasa Rao