Put OI addition signals positive bias

With the Open Interest (OI) addition increasing at highest strikes above the last Friday's closing of 11,274.20 points, the options data holds positive view for the week ahead (September 23-27).

The maximum Call OI addition at 11,600 and highest Put OI addition at 11,000 strike further support the positive bias for the market broad-based index NSE Nifty. The futures and options (F&O) September series is concluding on Thursday (September 26).

After the announcement by Finance Minister Nirmala Sitharaman, the short positions in index heavyweights have been covered partially. Further short covering is expected if NSE Nifty holds above 11,200 points.

Maximum Call OI of 27.43 lakh contracts is seen at 11,500 strike followed by 11,300 and 11,400 strikes. Highest addition of Call OI was recorded at 11,600 strike and maximum offloading was seen at 11,000 strike.

The 11,000 strike has highest Put OI of 48.54 lakh contracts followed by 10.800 strike with Put OI of 35.51 lakh contracts. Highest Put OI addition of 26.49 lakh contracts is seen at 11,000 strike followed by 19.14 lakh contracts Put OI addition at 11,200 strike.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities, said: "From the derivatives front, sharp short covering was seen by Call writers, who were holding their positions at 10,800, 10,900 and 11,000 Call strikes.

However, fresh addition of Open Interest was witnessed alongside in 11,000 Put strike, which should now act as key support for Nifty moving forward.

For coming week, we believe that bulls are likely to keep control over the markets and we may witness volatility as well ahead of September series future and options expiry."

The major stimulus announced by the Prime Minister Narendra Modi-led NDA government, boosted the market sentiment. Nifty closed above the crucial support zone of 10,700-11,000. This move has taken out the average short price of 11,200 of FIIs.

Above this level, Analysts forecast FPIs to close their short positions. Winding up short positions can propel the Nifty higher towards 11,500 strike.

"It was a blockbuster week for Indian markets as they witnessed a biggest single-day gain in last 10 years after the Union Finance Minister slashed corporate tax rate.

The overall sentiment just flipped towards bulls after the key announcements," added Bisht.

The market benchmark index BSE Sensex closed the week at 38,014.62 points a net recovery of 629.63 points or 1.69 per cent, from previous week's close of 37,384.99, points. Registering a gain of 198.3 points or 1.79 per cent, NSE Nifty ended at 11,274.20 points as against 11,075.90 points.

Bisht forecasts: "From technical front, Nifty has finally managed to close above its long-term moving averages on daily interval, which is again a positive signal for the markets.

Meanwhile, any dip towards 11,150-11,100 levels should be used as an opportunity to create long positions since as far Nifty is trading above 11,000-10,950 the bias is likely to remain bullish."

The volatility index faced resistance at 18 per cent and it may provide cushion to equity markets if it slips below 14 per cent. If volatility declines, then it would lead to stability for Nifty and provide a good platform for midcap stocks to perform.

"The Implied Volatility of Calls was up and closed at 14.74 per cent, while that for Put options closed at 15.50 per cent. The Nifty VIX for the week closed at 15.55 per cent and is expected to remain volatile. Put-Call ratio of OI for the week closed at 0.87," remarked Bisht.

Bank Nifty

Registering a gain of 882.8 points or 3.14 per cent, Bank Nifty ended the week at 28,981.55 points from the previous week's close of 28,098.75 points.

The banking index has been in consolidating phase in the range of 26,400 and 28,100 since mid August 2019. The Bank Nifty rallied about 2,700 points on the back of aggressive short covering.

According to data from ICICI Direct.com, the Bank Nifty recorded aggressive closure in most In the Money (ITM) and At the Money (ATM) Calls. The highest additions on the Call front are seen at 29,500 and 30,000 strikes.

On the Put side, additions were seen in 28,500 strike indicating that support can be seen around these levels in case of any retracement.