Market still has steam as Put writers adding hefty OI
Support and resistance levels shifting to higher bands; Options data indicating wider trading range; India VIX rises 2.12% to 14.54 level; PCR of OI at 1.47
The options data on NSE holds undercurrent strength in the market as support and resistance levels moved to higher levels. The resistance level rose by 1,300 points to 18,000CE and support level moved up by 400 points to 17,000PE indicating wider trading range for the week ahead (September 6-10, 2021).
The 18,000 strike has the highest Call OI followed by 17,800/ 17,300 /17,600 strikes. Further, 18,000/ 17,300/ 17,400/ 18,100 strikes witnessed reasonable addition of Call OI.
The 17,000 strike witnessed maximum Put OI followed by 17,100/ 17,200/ 17,300/16,900/ 16,800 strikes. Other strikes 17,300/ 17,200/ 17,150/ 17,000 strikes recorded moderate Put build-up.
Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Derivatives data also suggest that the bullish momentum will continue in the upcoming week. Put writers were seen adding hefty Open Interest at 17,200 strike, while Call writers held maximum Open Interest at 17,500 strike."
For the week ended September 3, 2021, BSE Sensex closed at 58,129.95 points, a net gain of 2,005.23 points or 3.57 per cent, from the previous week's closing of 56,124.72 points. Registering an encouraging gain of 618.40 points or 3.70 per cent, NSE Nifty ended the week at 17,323.60 points from 16,705.20 points a week ago.
"Nifty scaled to record high in the week gone by and closed above 17,300 mark for the first time. IT, FMCG, metal and energy counters provided support to markets, while auto counters remained laggard," added Bisth.
Analysts hold a positive view on banking stocks and consolidation in technology stocks after significant outperformance of the last couple of months. At the same time, metal, PSU stocks may gain in the near future.
The volatility index rose sharply last week and even moved near to 15 level as a sharp up move has triggered Call option writers to close their positions and move to much higher strikes.
Instead of looking at Call bases, one should focus on Put bases and remain positive till the Put bases are not breached. Currently, ATM 17,200 and 17,000 strikes are holding significant Open Interest and one should trade positive above these levels, according to ICICI Direct.com.
India VIX rose 2.12 per cent to 14.54 level. "Implied Volatility of Calls closed at 11.55 per cent, while Put options closed at 12.42 per cent. The Nifty VIX for the week closed at 14.24 per cent. PCR of OI for the week closed at 1.47," observes Bisht.
From the futures perspective, Nifty Open Interest increased further and the current OI of almost 1.5 crore shares is the highest seen since February 2020.
At the same time, FIIs' net longs also rose near 61,000 contracts suggesting ongoing positive bias. Hence, till there's no closure of positions, better to buy on declines strategy should continue.
NSE's banking index closed the week at 36,761.15 points, a gain of 1,133.35 points or 3.18 per cent, from the previous week's closing of 35,627.80 points. "Banking stocks, however, once again remained laggard during the week.
Bisht forecasts: "From the technical front, Bank Nifty has managed to give a fresh breakout above the key resistance level of 36,400 level, which points towards more upside in upcoming sessions. On the higher side, we expect Bank Nifty to move till 37,000 level from here on."
From an options perspective, significant options writing is evident at OTM Call strikes as stuck up option positions have moved to OTM strikes as the Bank Nifty moved above 36,000 level as per ICICI Direct.com. Analysts forecast positive bias in the banking index till the banking index sustains above 36,000 strike.
Bank Nifty futures Open Interest also rose sharply in August along with the up move seen in the index. Derivatives analysts expect fresh long positions and continuance of up move in the short-term.
The price ratio of Bank Nifty-Nifty at lows of 2.13 as it failed to perform in line with the market. However, the current price ratio is one of the lowest in the current year, while further underperformance may not be seen. Sectoral rotation should help the banking space start performing once again.