OI build-up points to higher resistance level

With heavy building-up of Open Interest (OI) on both sides of the Options chain, the resistance level moved up by 400 points to 18,000CE, while the support level remained at 17,000PE for a second consecutive week.

The 18,000CE has highest Call OI followed by 17,900/ 17,700/ 17,800/ 17,600/18,500 strikes, while 17,800/17,900/17,700/17,800/18,100 strikes recorded reasonable addition of Call OI. ITM strikes in the 17,550-17,300 range witnessed modest to heavy offloading in Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000PE followed by 17,400/ 17,500/ 17,600/ 17,300/ 17,200/ 16,500/ 16,800 strikes. Further, 17,500/ 17,600/ 17,400/17,000/ 17,200 strikes have significant build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Nifty's highest Call Open Interest concentration was seen at 18,000 strike followed by 17,900 and 17,600 strikes, while on Put side, highest concentration in Open Interest held at 17500 and 17400 strike respectively."

The sell-off in the February F&O series recorded major additions in the index Futures space. FIIs are still net short of 1.3 lakh contracts. Such volume of net shorts was seen in June 2022. Naturally, short covering takes place when the market has a huge volume of net shorts. The first round of short covering on Friday was over.

vvIt forced Call writers to close their positions and Put bases increased significantly and it indicates possible limited downside movements this week. In case of any pullback towards 17,450 level will provide a buying opportunity.

"Nifty and Bank Nifty, both the indices ended the week in a green zone after witnessing volatile sessions during the week.

In Friday's session, a round of short covering was witnessed in banking, metal, FMCG and financial stocks, which supported the bullish sentiments," added Bisht.

BSE Sensex closed the week ended March 3, 2023, at 59,808.97 points, a net recovery of 345.0 points or 0.58 per cent, from the previous week's (Feb 24) closing of 59,463.93 points. NSE Nifty ended the week at 17,594.35 points, a marginal rebound of 128.55 points or 0.73 per cent, from 17,465.80 points a week ago.

Bisht forecasts: "Technically Nifty has tested its fresh swing low and once again bounced back above its 200-days Exponential Moving Average on the daily charts. For the upcoming week, we expect Indian markets to remain on a volatile path, with bias likely to remain in favour of bulls. On the downside, 17300-17200 zone is likely to provide support, while on the higher side, 17800-17900 zone would act as a strong resistance for the upcoming week. Traders are advised to remain focused on stocks and sectors specific moves."

According to ICICIdrect.com, the Nifty current weekly Call base and Put base started with 17400 strike.

India VIX fell 6.09 per cent to 12.18 level. Despite global jitters, the volatility didn't cross 15 level. At the same time, sharp appreciation in INR against Dollar should also support the markets.

Analysts forecast that Nifty is trying to form some base near 17300-17400. Sectorally, BSFI and consumer stocks will focus on the back of short covering.

"The Implied Volatility (IV) of Calls closed at 11.39 per cent, while that for Put options closed at 12.03 per cent. The Nifty VIX for the week closed at 12.97 per cent. PCR of OI for the week closed at 1.22 lower from previous week," remarked Bisht.

Bank Nifty

NSE's banking index closed the week at 41,251.35 points, higher by 1,341.95 points or 3.36 per cent from the previous week's closing of 39,909.40 points.

The Open Interest in the Bank Nifty reduced sharply by 10 per cent last week along with the positive price clearly indicating short covering move. Bank Nifty managed to move above its February series VWAP of 41,100 level. With recent outperformance, Bank Nifty may continue its short covering move till 42,000 level in the coming weeks, according to ICICIdirect.com.