Hefty OI build-up indicating undercurrent strength of rally

The latest options data on NSE showed the downward movement of resistance level by 100 points to 16,700CE, while support level moved up 200 points to 16,600PE, when compared with previous week. The 16,700 strike has the highest Put base followed by 16,800/ 16,900/ 17,100/ 16,600 strikes. Further, 16,700/16,800/ 17,000/ 17,100/ 17,500 strikes recorded significant Call build-up.

Coming to the Put side, the 16,600 strike has maximum Put OI followed by 16,700/ 16,500/ 16,600/ 15,500/ 16,000 strikes. Other strikes 16,600/ 16,700/ 16,500/ 15,800 witnessed reasonable addition of Put Open Interest (OI).

Analysts believe that Nifty may trade positive with support remaining at 16,400 level, while the major option concentration remains at ATM 16,600 Put and 16,700 Call suggesting some range bound bias in the short term. In such a scenario, declines remain a buying opportunity and only a move below 16,400 may provide some extended weakness, according to ICICI Direct.com.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Put writers were seen adding hefty Open Interest at 16,600 and 16,700 strikes, which point towards strength in the current rally. On the higher side now 16,850-16,900 zone would act as an immediate hurdle for Nifty."

For the week ended August 20, 2021, BSE Sensex closed at 56,124.72 points, a net gain of 795.40 points or 1.43 per cent, from the previous week's closing of 55,329.32 points. Registering an encouraging gain of 59.95 points or 1.54 per cent, NSE Nifty ended the week at 16,705.20 points from 16,450.50 points a week ago.

During the August F&O series, the NSE Nifty breached consolidation phase as it witnessed a one-way upside making new lifetime high at around 16,700 level. Series-on-series, the Nifty gained 5.50 per cent, while Bank Nifty under performed a bit, but moved up by just 2.67 per cent.

Nifty rollover to September series was 83.98 per cent as against its previous 82.76 per cent and the three-month average of 81.55 per cent and huge long additions followed by high rollover indicate that the Nifty has seen aggressive long rollover into the September series.

Bank Nifty September month rollover was 79.08 per cent versus 81.26 per cent. The overall market-wide rollover was 88.90 per cent versus 91.82 per cent.

"Indian markets began the September series on a positive note as Nifty hit record highs and managed to close above 16,700 level for the first time. Midcap index continued its upside momentum along with IT and FMCG counters," remarked Bisht.

The Nifty Futures began the September series with an open interest of 1.31 crore shares versus 0.95 crore shares in open interest. The September derivatives series began with Rs167,608 crore stock futures as against previous level of Rs166,551 crore.

The futures and options (F&O) September series witnessed Rs21,735 crore Nifty futures from Rs15,054 crore and Index options of Rs250,610 crore against Rs232,374 crore. The stock options were Rs61,512 crore from Rs 66,518 crore . From the rollover perspective, Nifty witnessed September series beginning with the highest OI seen since Feb 2020.

FIIs' net long positions also eased from a month-on-month basis and it's indicating caution at higher levels. However, analysts hold a positive view for Nifty as long as it's above 16,400 level.

The volatility index was sluggish despite settlement and closed the week near 13 level as India VIX eased 0.98 per cent to 13.40 level. Volatility may increase marginally and any change in bias should be warranted only above 15 level for equities. The recent uptick in volatility can be attributed to ongoing talks about Fed tapering due to improved economic conditions, as per ICICI Direct.com.

Bisht further added that "the Implied Volatility of Calls closed at 10.76 per cent, while that for Put options closed at 11.45 per cent. The Nifty VIX for the week closed at 13.54 per cent and is expected to remain volatile. PCR of OI for the week closed at 1.41."

Bank Nifty

NSE's banking index closed the week at 35,627.80 points, a fall of 593.95 points or 3.61 per cent, from the previous week's closing of 35,033.85 points. "Banking stocks, however, once again remained laggard during the week.

From the technical front, the Banking index is facing a strong hurdle in the 36,000-36,300 levels above which we expect the Banking counter is likely to join the rally, which could take Bank Nifty towards 37,000 level as well.

Till then some consolidation in prices can be expected at current juncture," forecasts Bisht. The low rollover of the shorts in Bank Nifty is a positive sign for the index.