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Options data points to renewed bullishness

Put writers shifting to higher bands; Monthly F&O series expiry on July 30
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Put writers shifting to higher bands; Monthly F&O series expiry on July 30 

Highlights

When compared with the previous week, the options data is indicating that resistance and support levels moved up by 200 points each as maximum Call OI buildup is seen at 11,500 strike and highest Put OI addition is at 11,000 strike after the trading hours on Friday

When compared with the previous week, the options data is indicating that resistance and support levels moved up by 200 points each as maximum Call OI buildup is seen at 11,500 strike and highest Put OI addition is at 11,000 strike after the trading hours on Friday. Derivatives analysts expect stock-specific movements and pick-up in rollover activity as the market is entering the expiry week. The July series derivatives expiry amid ongoing earnings season for June quarter will result in a high volatility this week.

The NSE Nifty moved in the range of 10,900 to 11,200 during the last week and held on to these gains towards the end. The monthly derivatives series expiry is on July 30 (Thursday). Hence, the closure of Call writing positions will decide the trend. Call writers are mostly at the 11,200 strike. Some positions have already shifted to 11,500 strike, which will remain a target for week ahead i.e July 27-31. Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, the short covering was witnessed by Call writers at 11,100 strike, while Put writers seen shifting to higher bands which points towards more upside in coming sessions."

The highest Call OI of 38.61 lakh contracts is seen at 11,500 strike followed by 11,200 strike, which recorded maximum Call OI addition of 6.87 lakh contracts, with 16.31 lakh contracts, 11,300 strike, which has Call OI buildup of 6.44 lakh contracts, with 23.27 lakh contracts and 11,400 strike with 21.66 lakh contracts. Coming to Put side, the 11,000 strike has highest Put OI addition of 43.68 lakh contracts followed by 10,000 strike with 38,47 lakh contracts, 10500 strike with 30.74 lakh contracts and 10,800 strike with 25.60 lakh contracts. The 11,100 strike recorded highest Put OI buildup of 6.19 lakh contracts followed by 11,000 strike with 5.63 lakh contracts and 10,800 strike with 5.34 lakh contracts.

Bisht further added that "Nifty index continued its winning streak for the sixth consecutive week and ended above the 11,150 level backed by sharp surge in some of the leading names like Reliance, Infosys and Tech Mahindra along with buying momentum in oil and gas space." For the week ended July 24, 2020, BSE Sensex closed at 38,128.90, a net gain of 1,108.76 points or 2.99 per cent, from the previous close of 37,020.14 points. Similarly, NSE Nifty too rose by 292.45 points or 2.68 percent, and closed the week at 11,194.15 points as against last week's 10,901.70 level.

Bisht forecasts: "From technical front, the setup seems to be still positive for both the indices and we believe that bullish momentum likely to continue in coming sessions as well. For Nifty immediate hurdle is placed at 11,250 level, above which rally can get extended towards 11,400 levels as well."

Volatility index continues in subdued mode on higher Put writing, which has escalated the Put-Call Ratio of OI. The current reading of PCR-OI shows overbought zone, but given only week is left to expiry, analysts are not expecting any major decline the NSE Nifty.

"The Implied Volatility of Calls closed at 22.56 per cent, while that for Put options closed at 24.76 per cent. The Nifty VIX for the week closed at 24.64 per cent and is expected to remain sideways. PCR OI for the week closed at 1.63 indicating more Put writing than Calls," remarked Bisht. After being sidelined for some time, FIIs resumed buying activity in India as they bought Rs8,020 cr in equities as DIIs turned net sellers as they offloaded Rs4,529cr. However, the FII activity was relatively low in the F&O space. FIIs bought over Rs1,998 crore in index futures and sold to the tune of Rs2,267 in the stock futures segment during the week, according to data at ICICI Direct.com, However, they bought Rs3,492 cr in index options.

Bank Nifty

Gaining 695.25 points or 3.16 per cent for the week, Bank Nifty closed at 22,662.05 points as against 21,966.80 points. "Although Bank Nifty witnessed healthy profit booking in Friday's session, but still manage to end the week on positive note with gains of nearly three per cent," said Bisht.

IT stocks supported the market along with an energy heavyweight. Analysts forecast that banks would support the upward move as declines can still be bought as short covering may be seen in banking stocks in the expiry week. However, mid-cap private banks are well placed to see another 6-10 per cent jump.

With significant Call additions, the 23,500 strike should act as a target for the expiry week. However, Put writing blocks are seen in ATM strike of 22,500 followed by 22,000 indicating major supports for the week.

According to ICICI Direct.com, the Bank Nifty moved towards its sizeable Call base of 23,000 during the week whereas most of its components supported the move. Quarterly numbers of HDFC Bank and Axis Bank provided required boost whereas more triggers can be seen ahead as other heavy weight numbers are lined up.

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