Put buildup signals higher support level

Finally Nifty closed above 12,300 level, below which it was in consolidation mode for four weeks. Derivatives analysts forecast a gradual upward move towards 12,600 level in the coming weeks. However, the markets may undergo some volatility near expiry.

After the trading hours on Friday (January 17), the 12,400 strike has maximum Call OI of 19.36 lakh contracts followed by 12,500 strike with 12.68 lakh contracts and 12,350 strike with 8.94 lakh contracts.

Highest Call OI buildup of 7.64 lakh contracts at 12, 400 strike followed by 12,500 strike with 5.47 lakh contracts. The 12,600 strike has Call OI of 6.87 lakh contracts and OI addition of 1.58 lakh contracts. This indicates higher resistance level for Nifty in the coming weeks, observe derivatives analysts.

Coming to Put side, 12,300 strike has highest Put OI of 19.76 lakh contracts followed by 12,350 strike with 12.38 lakh contracts and 12,200 strike with 10.89 lakh contracts. Highest Put OI addition of 5.02 lakh contracts was seen at12,350 strike followed by 12,200 strike with 2.88 lakh contracts.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, 12,300 Put strike and 12,400 Call strike hold with maximum Open Interest, which points towards range bound moves next week.

We expect that markets should take a breather at the current juncture and stock-specific action should remain under focus on back of ongoing result season."

The higher Put base at 12,300 would remain a support on any intermediate decline. Call positions have been the highest at 12,500 since the start of the January derivatives series with additions seen even at the 12,600 strike. These would be the Nifty target levels.

Due to support from non-banking heavyweights such as cement, metals, pharma, FMCG and auto pack, Nifty is also keeping the momentum intact in the broader market.

Derivatives analysts feel that midcaps from these sectors would remain in the limelight even in the coming sessions.

"Nifty indices once again made new record highs in the week gone by and ended just shy of record close. During the weekend session, some profit booking was witnessed in counters like banking, telecom, auto and metal, while few pharma names shine on the street," observes Bisht.

For the week ended January 17, 2020, BSE Sensex closed at 41,945.37 points, a net gain of 345.65 points or 0.83 per cent, from the previous close of 41,599.72 points. NSE Nifty rose by 95.55 points or 0.77 per cent and closed the week at 12,352.35 points as against last week's 12,256.80 points.

"However, from technical front, Nifty is currently hovering into an overbought zone, while some negative divergences have been observed in Bank Nifty which indicates towards limited upside as of now.

However on downside the immediate support for Nifty is placed at 12300-12280 zone while banknifty can get support at 31500-31300 levels," forecasts Bisht.

Implied Volatility (IV) has been on an upward bias as the market is looking towards Budget-2020. The IV reverted from lower levels of 12.5 per cent to 14 per cent.

The hurdle for volatility is placed at 16 per cent from where it should again start reverting lower, thus keeping the overall bias of the equity index positive.

"The Implied Volatility of Calls closed at 13.56 per cent, while that for Put options closed at 14.10 per cent. The Nifty VIX for the week closed at 14.18 per cent and is expected to remain volatile.

PCR OI for the week closed at 1.41. In coming week we believe that as far Nifty is trading below 12,400 and Bank Nifty below 32,000 levels the traders should remain cautious before initiating any fresh long positions.

Bank Nifty

With a net loss of 506.75 points or 1.57 per cent for the week, Bank Nifty closed at 31,590.65 points as against 32,097.40 points.

The banking and financial stocks witnessed a volatile trading on the back of global jitters and high uncertainty in the currency market.

The OI eased during the past few sessions as the NSE banking index moved towards the lowest level of the January F&O series. However, it reverted from its highest Put base of 31,000.