Options data holds strong support level

As per the latest F&O data on NSE, the 16,600 strike has the highest Call OI followed by 16,500/ 16,400/ 16,700/ 16,200/ 16,300 strikes, while 16,600/ 16,500/ 16,400/ 16,200/16,300 strikes witnessed reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 16,000PE followed by15,900/15,800/15,700/15,750/15,500/ 15,400/ 15,300/15,200/15,100/15,000 strikes. Further,16,000/15,900/15,800/15,700/15,600/15,500/15,20015,100/15,000 strikes recorded moderate to significant build-up of Put OI.

Put writing is higher than Call strikes with highest Put base placed at ATM 16,000 strike. A round of recovery towards 16500 seems possible if Nifty is able to hold 15,900 points. The bias will change if the Nifty closes below 15900. In that scenario, Nifty may move towards 15600 in coming sessions, according to ICICIdirect.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 15,900 & 16,000 strikes, while Call writers shifted their positions at 16,200 strike."

The Nifty may witness a further recovery ahead of crucial events lined up in the second half of the month.

"Indian markets remained volatile last week and traded in a range bound manner as tug of war between bulls and bears kept Nifty to hover around 16,000 level. Bank Nifty ended the week below 35000 level, while Nifty closed above key psychological level of 16000," adds Bisht.

For the week ended July 15, 2022, BSE Sensex closed at 53,760.78 points, a net fall of 721.06 points or 1.32 per cent, from the previous week's closing of 54,481.84 points. Registering a loss of 171.40 points or 1.05 per cent, NSE Nifty ended the week at 16,049.20 points from 16,220.60 points a week ago.

Bisht forecasts: "For upcoming week, we expect markets to trade with positive bias as far Nifty holds above 15900 level. On the higher side, a decisive move beyond 16,150 level could trigger a fresh round of buying and may take Nifty towards 16350 level as well."

On the F&O space, the net short open interest from FIIs increased once again last week as they have crossed 1 lakh contracts once again. These additional shorts were seen post US inflation numbers as FIIs sold index futures worth Rs2,600 crores last week. At the same time, longs in stock futures also declined marginally last week and FIIs liquidated positions over Rs1,250 crore.

The volatility index India VIX declined 4.05 per cent to 17.60 level, which is at its lowest levels seen since January below 18 level. Despite recent weakness seen in the banking and technology space, the Nifty was largely able to hold its levels. While stock-specific volatility may remain high amid the result season, broader weakness is unlikely till VIX does not move above 20 level.

"Implied Volatility of Calls closed at 17.80 per cent, while that for Put options closed at 18.37 per cent. The Nifty VIX for the week closed at 18.34 per cent. PCR of OI for the week closed at 1.16 lower than previous week, which indicates more Call writing than Put writing during the week," remarked Bisht.

FIIs increased their net short positions again above 1 lakh contracts. Majority of these positions were formed after US inflation numbers. Hence, these positions are susceptible to short covering.

The volatility index remained subdued for a second week in a row whereas short position by FIIs in index future segment rose marginally. Now, FIIs' net shorts moved marginally above one lakh contracts. Closure in these positions should trigger meaningful upsides.

Bank Nifty

NSE's banking index closed the week at 34,682.65 points, a decline of 441.40 points or 1.25 per cent, from the previous week's closing of 35,124.05 points. "Bank Nifty also could not manage to trigger any fresh moves and ended the week with a loss of around one per per cent," said Bisht.

Bank Nifty, after testing its Call base of 35,500 last week, failed to maintain follow up momentum. HDFC Bank and IndusInd Bank were major drags on the index. Clear underperformance was seen last Friday where despite the Nifty moving almost 100 points higher, the Bank Nifty ended marginally negative.

During the last week, few Call option strikes of Bank Nifty witnessed formation of aggressive writing positions. This has pushed the index towards its support levels of 34500. Upside movement for the index may continue. Bank Nifty should hold 34500 on a closing basis and stocks like HDFC Bank, Axis and Kotak Bank should participate. Recently the Indian rupee made a new lifetime low against the US dollar due to which there would be some negative sentiments on the Street. However, as far as the Bank Nifty is concerned, a close above 35000 would help traders regain confidence. This should provide further upsides this week.