Nifty option band gyrates in 11,550-11,750 range
India VIX at 3-yr high of 21% indicates volatile swing; Bank Nifty clocks long liquidation as OI drops 25%; stock-specific F&O activity amid quarterly results
Considering the general election results scheduled on May 23, a lot of hedging took place in May-30 derivatives contracts. This is expected to result in volatile trading in the days to come. Volatility during the last week continued to move up due to hedging done by market participants.
India VIX has reached to the three-year hurdle of 21 per cent. If it sustains above it, then it'll create more volatility to reach 30 per cent, the volatility level seen before 2014 elections.
According to F&O data after trading hours on Friday, the option band is ranging between 11,550 and 11,750 strikes. The truncated week ahead may witness range-bound activity.
"We have seen smart recovery led by short covering from lower levels. Call writers covered their short positions and Put writers were actively selling puts. Derivative data has again turned positive.
We are seeing maximum Put open interest buildup of more than 20 lakh shares at 11,500 and11,600 strike Puts, which should act as strong support zone. Nifty is most likely to trade in the range of 11,550 to 11,750 with positive bias.
Nifty has support at lower levels at 11,500 and 11,550 spot levels. We have seen Put writing at 11,500 and 11,600 strikes," said Dhirender Singh Bisht, senior analyst (derivatives) at SMC Global Securities Ltd.
The marginal surge in VIX, which was up by 0.18 per cent to 20.99 per cent mark, indicates limited upward movement in a volatile swing. The 1.18 Put-Call ratio OI is indicating Put writing of late.
"Implied Volatility (IV) of calls was down and closed at 12.71 per cent, while that for Put options closed at 12.55 per cent.
The Nifty VIX for the week closed at 20.96 per cent and is expected to remain sideways. The PCR OI for the week closed at 1.18 indicating Put writing in recent rally," forecasts Bisht.
With a little over 14 lakh contracts, 11,700 Call strike has highest Open Interest (OI) followed by 11,800 and 12,000 strikes. 11,600 Put strike has highest OI of more than 15 lakh contracts followed by 11,500 strike, while Call unwinding was recorded at immediate strikes.
Maximum Put writing seen at 11,600 strike, while highest OI addition was recorded at 11,750 strike.
For the week ended April 12, 2019, NSE Nifty closed at 11,643.45 points, a minute loss of 22.5 points or 0.19 per cent, from previous week's close of 11,665.95 points. BSE Sensex closed at 38,767.11 points, a net loss of 95.12 points or 0.244 per cent from 38,862.23 points of previous weekend level.
Elaborating technicals, Bisht further added that "On the technical front 11,500-11,550 spot levels is strong support zone and current bounce is likely to continue towards 11,750-11,800 levels."
Registering a marginal loss of 146.1 points or 0.48 per cent for the week, Bank Nifty ended at 29,938.55 points from previous week's closing of 30,084.65 points. According to ICICI Direct.com, volatility remained high for the week with the Bank Nifty facing a hurdle near 30,500 levels.
It finally violated its sizeable Put base of 30,000, which was acting as a support for the week. This triggered selling in most private banks along with profit booking in PSU banks.
Late buying in several private bank stocks helped futures end near sizeable Put base of 30,000 level. IVs moved above 21 per cent during the week, which is likely to trigger some intraday volatility.
As the April series progressed analysts see long liquidation as the closure of 25 per cent in OI, whereas the index corrected nearly 500 points. Maximum OI addition was recorded at 29,500 and 29,700 strikes. Analysts feel the Bank Nifty will consolidate for a few days. Once it manages to end above 30,200, fresh buying interest can be seen.
Despite underperformance when compared with Nifty, the current price ratio of Bank Nifty-Nifty remained above its two-year high of 2.55. The outperformance in banking stocks may be seen once it manages to end above 30,200.
This, in turn, would push the ratio higher. It may move towards 2.62 levels in coming weeks.
The Indian stock markets will be closed on April 17 (Wednesday) and April 19 on account of Mahavir Jayanti and Good Friday respectively.