Put OI buildup denotes consolidation after strong run-up

After recouping the losses suffered immediately after the Budget-2020 announcement, the NSE Nifty seems to be heading towards consolidation. The previous high Put base at 12,000 strike remained as the major support for Nifty and has highest Open Interest (OI) indicating an immediate support for the week (February 10-14, 2020) ahead as well.

Derivatives analysts expect that the markets are set for some consolidation as the global headwinds still remain in the wake of Coronavirus outbreak.

However, the money flows should continue to remain in the mid-cap and small-cap stocks, said analysts. The stock-specific activity has picked up further amid several diverse trading strategies as and when some reform process starts from the government.

The futures and options (F&O) data is indicating a wider options trading range of 11,800-12,300 for the week ahead.

"From derivatives front, the 12,000 Put strike witnessed a heavy writing, which could support the markets in coming week," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

The maximum Call OI of 17.99 lakh contracts was seen at 12,200 strike, which also recorded highest OI addition of 6.27 lakh contracts, followed by 12,100 strike with 13.98 lakh contracts and 12,300 strike with 13.64 lakh contracts.

On the Put side, 12,000 strike has maximum OI of 16.99 lakh contracts followed by 11,800 strike with 14.32 lakh contracts and 11,900 strike with 13.24 lakh contracts. Highest Put OI addition of 4.49 lakh contracts was seen at 11,900 strike and 3.87 lakh contracts 11,800 strike.

"In coming week, we believe that volatility is likely to grip the market and traders should keep stock-specific action on the radar on the back of the ongoing result season. On sectorial front, Open Interest added in tyres and auto stocks, however, oil and PSU banks witnessed a drop in Open Interest in the last session," remarked Bisht.

For the week ended February 8, 2020, BSE Sensex closed at 41,141.85 points, a net gain of 1,406.32 points or 3.53 per cent, from the previous close of 39,735.53 points. NSE Nifty regained 436.5 points or 3.74 per cent and closed the week at 12,098.35 points as against last week's 11,661.85 points.

Bisht forecasts: "Both the indices once again reclaimed their short and long-term moving averages on daily charts after a steep fall witnessed last week. Both Nifty and Bank Nifty gave almost a V shape recovery after sliding well below 200-DEMA on daily charts.

As far levels are concerned now 12,000-11,950 zone would be a major support for Nifty while on higher side 12,200-12,250 would be immediate resistance,"

Global implied volatility (IVs) eased off considerably in the past few sessions, while crude oil prices declined. The drop in global volatility is indicating consolidation in the markets. In Indian markets, the volatility has declined from 18 per cent to 14 per cent.

However, the Put premiums are much higher and short volatility strategies can still be worked out, according to ICICI Direct.com. FII inflows have remained volatile in the equity markets recently.

If the big outflow figures are not seen, it may also lead to consolidation, going ahead, observe analysts. "The Implied Volatility of Calls closed at 8.60 per cent, while that for Put options closed at 14.74 per cent.

The Nifty VIX for the week closed at 13.74 per cent and is expected to remain volatile. PCR OI for the week closed at 1.17," added Bisht.

Nifty futures moved up 0.37 per cent to 12,131.

Bank Nifty

With a net recovery of 1,381.05 points or 4.63 per cent for the week, Bank Nifty closed at 31,201.95 points as against 29,820.90 points.

The recent FPI inflows into Indian markets are supporting the home currency.

And this will provide a cushion to banking and financial stocks, observe the analysts. For the week, major OI build-up was seen at 31,000 Put and 31,500 Call strikes.

The Bank Nifty rallied from the bottom with a decline in IV. Analysts feel that the Bank Nifty will hover at the current levels for some time before moving higher. Hence, writing OTM Call and Put options would be a good strategy at current levels, forecast the derivatives analysts.

The 32,000 strike has maximum Put OI of 4.57 lakh contracts followed by 31.500 strike with 4.31 lakh contracts and 31,600 strike with 2.32 lakh contracts.

On Put side, the 31,000 strike has maximum OI of 4.76 lakh contracts followed by 30,000 strike with 4.58 lakh contracts and 30,500 strike with 3.71 lakh contracts.

Highest Put OI addition was seen at 2.37 lakh contracts at 30,000 strike.