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Options data indicates undercurrent weakness
Highest OI base on Calls and Puts points to limited upside and consolidation; Continuous rise in FII short positions may provide a cushion on downsides
The narrowing gap between support and resistance levels is indicating a consolidation range for the week ahead (February 7-11, 2022). The resistance level declined by 1,200 points to 17,800CE and support level moved up by 1,000 points to 17,500PE.
The 17,800 has the highest Call OI followed by 18,500/ 18,000/17,600 / 17,700/19,000 strikes. Further,17,800/18,000/18,500/18,400/17,600 strikes recorded significant addition of Call OI.
Coming to the Put side, the maximum Put base is seen at 17,500 strike followed by 17,400/ 17,000/ 16,800/ 16,800/17,400 strikes. 16,500/16,700/17,200/17,200 strikes witnessed reasonable Put OI build-up. The low Open Interest seen in February series continued as no major OI addition was observed last week as well. The current Nifty OI for February series is still below one crore shares. Meanwhile, short positions from FIIs continue to rise and are at their highest
levels since March 2020, which may provide a cushion on downsides in terms of short covering.
Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers were seen adding hefty Open Interest at 17,600 and 17,700 strikes, while marginal Put writing was observed at 17,500 and 17,400 strikes."
As per ICICIdirect.com, NSE Nifty holds highest Put concentration at ATM 17500 strike while Call option concentration is placed at 17800 strike fr the coming weekly settlement. Call options concentration is much higher than the Put for the coming week suggesting limited upsides. Nifty may consolidate for sometime after witnessing significant volatility in the last one month.
"Indian markets ended the week on a positive note as Nifty closed just above 17,500 mark after a volatile session throughout the week. The tug of war among bulls and bears kept markets volatile," said Bisht.
For the week ended February 5, 2022, BSE Sensex closed at 58,644.82 points, a further net loss of 1,444.59 points or 2.52 per cent, from the previous week's closing of 57,200.23 points. Registering a drop of 414.35 points or 2.42 per cent, NSE Nifty ended the week at 17,516.30 points from 17,101.95 points a week ago.
Bisht forecasts: "From the technical front, both Nifty & Bank Nifty are still holding well above their long-term moving averages on daily charts. For the upcoming week, we expect markets to trade in a volatile manner and may consolidate in a broader range. Nifty could find support at 17400 - 17250 zone while 17700 & 17800 levels would act as strong hurdles for the upcoming week."
Volatility index India VIX declined by 1.37 per cent to 18.90 level. On the volatility front, the Union Budget also turned out to be a non-event. Amid high volatility, the Nifty remained almost flat. While India VIX has subsided below 20 levels once again, it may further decline in coming weeks in line with global markets and fresh negative bias should be formed only if it sustains above 20 levels, according to ICICIdirect.com.
"Implied Volatility of Calls closed at 17.78 per cent, while that for Put options closed at 18.56. The Nifty VIX for the week closed at 19.16 per cent. PCR of OI for the week closed at 1.48," added Bisht.
FII activity reduced substantially in F&O space. FIIs were net buyers in the stock futures. With Nifty moving towards 17,700 points, FIIs bought index options worth Rs5,495 crore and also bought to the tune of Rs4,377 crore in stock futures, while selling Rs335-cr index futures.
Bank Nifty
NSE's banking index closed the week at 38,789.35 points, a net recovery of 1,099.95 points or 2.91 per cent, from the previous week's closing of 37,689.40 points. "Bank Nifty, however, outperformed Nifty and ended the week with gains of more than 2.5 per cent. However, Bank Nifty charts are looking much promising comparatively as it can be seen trading in a rising channel with formation of higher bottom pattern," remarked Bisht.
Bank Nifty-Nifty price ratio moved further high towards 2.22 last week. The ratio may move towards 2.27 level in the short term before any intermediate correction. The continued underperformance in Technology space may lead to this relative outperformance, according to ICICIdirect.com.
