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Options data indicates imminent correction
Call writers creating hefty Open Interest at 11300, 11400 & 11,500 strikes; Put-Call Ratio indicates Call writing
The Options band further narrowed as the highest Open Interest (OI) was seen at 11,300 CE and 11,000 PE after the trading hours on last Friday. The options data points to strong resistance levels for the NSE Nifty and scattered Put OI build-up at strikes below the 11,000 strike.
As the broad-based index entered into some consolidation after a sharp move in the last couple of weeks, the NSE Nifty may consolidate around 11,000 level. The 11,000 strike has the highest Put base for the August F&O series as well. Thus, immediate and major support level remains at 11000 strike. If Nifty closes below this level, it may be considered negative in the ongoing momentum.
The 11,300 strike, which also recorded maximum Call OI addition of 15.13 lakh contracts, has highest Call OI of 27.19 lakh contracts followed by 11,500 strike with 23.56 lakh contracts, 11400 strike with 23.49 lakh contracts and 11,800 strike with 22.95 lakh contracts.
The 11,200 strike witnessed Call OI build-up of 12.35 lakh contracts, while 11400/11500 strikes also recorded significant Call OI build-up. Coming to Put side, the 11,000 strike, which also recorded maximum Put OI addition of 10.13 lakh contracts, has highest Put OI of 19.98 lakh contracts followed by 10,800 strike with 14.48 lakh contracts, 11100 strike with 13.16 lakh contracts and 11,200 strike with 12.40 lakh contracts. Put OI build-up at other strikes was marginal and scattered during the past week.
Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd, said: "Indian markets remained subdued last week as Nifty hovered in the range of 11,110 to 11,400 levels with some stock-specific action. However, in later part of the week, bears took the charge as markets get dragged sharply lower as banking, auto and telecom stocks remained under pressure.
From derivatives front, both the Call and Put writers remained active during the week. However, after a long time, Call writers were seen creating hefty Open Interest at 11300, 11400 & 11,500 strikes, while Put writers seen shifting to lower bands, which suggest a sign of caution for upcoming sessions."
For the month, the highest Call base is at the 11,500 strike followed by 11,300 strike. The volatility has touched lows near 20 and closed the week above 21 levels, indicating limited downsides. However, after continued decline in the volatility, a round of upsides should be expected, opine analysts.
According to ICICI Direct.com, most heavyweights are witnessing continued Call writing at ATM and OTM strikes suggesting limited upsides in the near term. Moreover, continued selling by domestic institutions at higher levels may keep upsides limited in the near term.
"On weekly basis, there was a long build-up seen in BharatForg, TataPower and CumminsInd, whereas short build-up in Concor, Bharti Airtel and Bank of Baroda. For coming week, the 11,000 to 11,300 range for Nifty would remain crucial as slide below 11,000 levels would trigger long unwinding, which could take markets even lower," remarked Bisht.
The Implied Volatility (IV)
"The Implied Volatility of Calls closed at 17.33 per cent, while that for Put options closed at 21.12. The Nifty VIX for the week closed at 21.67 per cent and is expected to remain sideways. Put-Call Ratio of OI for the week closed at 1.48 slightly down from the previous week and it's indicating Call writing in out of the money strike," added Bisht.
Shedding minute 74.6 points or 0.34 per cent for the week, Bank Nifty closed at 21,679.40 points as against previous week's closing of 21,754 points. The NSE banking index was trading in a positive mode, but couldn't breach its highest Call base of 22,500 strike despite multiple attempts.
For the week ahead, the highest Call base remains at 22,500 strike, which should act as immediate and major hurdle, above which it may move towards 23,500 level.
The stock-specific action continued where most of the private banks supported the index. Considering heavy Call writing at ATM and OTM strikes for the private sector, the banking heavyweights' further upmove remains a challenge.
Among stocks, IndusInd Bank and Axis Bank are trading near their highest Call bases and sustainability at current levels may trigger short covering move. As per the ICICI Direct.com, for the coming week, noteworthy Put base is placed at the ATM 22,000 strike. If it remains below these levels then further declines of 800-1000 points cannot be ruled out.
Upsides in the banking space seem limited as this space has already remained subdued. Derivatives analysts see stock-specific reversals from this space. Recent buying was seen in underperforming midcap stocks, which may continue to perform in this positive consolidation.