Options OI signals further fall in support, levels

After hovering in a broad consolidation range for four weeks, Nifty slipped into a free fall during the past two weeks as the broad-based index closed below crucial 11,000 level.

Based on the futures and options (F&O) data, Nifty may bounce on session-specific movements as the Friday's closing was higher than opening level.

However, options data indicates bearish sign on weekly basis. If Nifty holds above 11,000 level, some short closures are expected in the current truncated week.

The bourses are closed on Tuesday on account of Holi. Major short covering is unlikely until the fears over Coronavirus are eased off, remarked derivatives analysts.

According to the NSE derivatives data after trading hours on Friday, the options Open Interest (OI) indicating declining of 500 points of support and resistance levels when compared to the previous week's highest Call OI at 12,000 and Put OI at 11,000 strikes.

Maximum Call OI of 18.35 lakh contracts was recorded at 11,500 strike, which has highest Call OI addition of 9.68 lakh contracts, followed by 11,300 strike with 12.99 lakh contracts and 11,400 strike with 12.65 lakh contracts.

The 11,000 strike and 11,200 level witnessed significant Call OI buildup of 8.66 lakh contracts and 8.21 lakh contracts respectively.

"From derivatives front, Call writers seen adding heavy Open Interest build up in 11,000 strike, 11,100 & 11,200 Call strikes, which clearly indicate limited upside in coming sessions," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

The 10,500 strike has maximum Put OI buildup of 9.89 lakh contracts followed by 10,900 strike, which has highest OI addition of 7.26 lakh contracts, with 9.84 lakh contracts and 11,000 strike with 9.49 lakh contracts.

With this, the options band is indicating a wide trading range of 11,500-10,500 points.

The 11,200 strike and 11,300 strike witnessed maximum Put OI offloading of 3.44 lakh contracts and 2.87 lakh contracts respectively. This is indicating shifting of support levels to lower strikes, observe derivatives analysts.

"Indian markets once again fell like a pack of cards in the week gone by with Bank Nifty dropping more than 4.50 per cent, while Nifty ended the week with nearly two per cent loss, as sentiments got hit by concerns over Coronavirus, stoking fears of a prolonged world economic slowdown. Indian rupee also hit 74 per US dollar after the central bank seized control of Yes Bank and limited deposit withdrawals."

For the week ended March 6, 2020, BSE Sensex closed at 37,576.62 points, a fall of 720.67 points or 1.88 per cent for the week ended February 28, 2020, from the previous close of 38,297.29 points.

Similarly, NSE Nifty too declined by 212.3 points or 1.89 percent, and closed the week at 10,989.45 points as against last week's at 11,201.75 points.

"From technical front, both the indices are holding well below its 200 days exponential moving average on daily charts and trading with negative bias on broader charts as well.

We expect that huge volatility likely in coming sessions as well and on any bounce towards 11,200 to 11,300 in Nifty will cap any sharp upside into the prices.

However, on downside 10,800-10,700 zone would be immediate support for Nifty while 27,500 to 27,000 zone would act as support for Bank Nifty in coming sessions," forecasts Bisht.

Implied Volatility (IV) of Nifty eased marginally to 25 per cent from 27 level. India VIX rose over 10 per cent to 25.6 level and is indicating volatile swing trading in next few sessions.

"The Implied Volatility of Calls closed at 21.32 per cent, while that for Put options closed at 25.50 per cent. The Nifty VIX for the week closed at 25.64 per cent and is expected to remain volatile. PCR OI for the week closed at 0.85," said Bisht.

Bank Nifty

With a fall of 1,345.7 points or 4.61 per cent for the week, Bank Nifty closed at 27,801.45 points as against 29,147.15 points. On the last session of the week alone, Bank Nifty fell nearly 1,100 points.

Restriction of money withdrawal from Yes Bank created more panic. Most private banks along with PSUs saw a sharp fall in line with global markets.

According to ICICI Direct.com, Bank Nifty had the highest Put base of the weekly expiry at 28,500. However, as the index slipped below 28,000, positions moved lower to the 27,000 strike Put, which holds the highest OI.

However, due to higher IVs, premiums are still higher. This has attracted a lot of Call writing. This will keep the index move in check. Analysts forecast that 28,500 strike will now act as a supply zone.

The ICICI Direct.com data further shows that the current price ratio of the Bank Nifty-Nifty declined to 2.53 level form 2.60.

Earlier, the ratio had seen support near 2.50 level. We feel this underperformance can push the ratio towards its previous hurdles.