Put OI buildup signals further pull back

The 12,300 strike remains a strong resistance for Nifty as it has highest Call Open Interest (OI) for the past two weeks. Maximum Call OI built up was at 12,300 strike in week ended January 10, 2020, as against 12,250 and 12,200 strikes in the previous week.

Similarly, highest Put strike remains at 12,200 strike for two weeks. Maximum Put OI addition is seen at 12,250 as against previous week's level of 12,100.

The upward movement of OI addition signals marginal scope for further rise in support level and may push Nifty further upwards slightly.

After hitting record high of 12,311 mark on Friday (January 10, 2020), Nifty closed above 12,200 level. F&O data indicates Options band within 12,000-12,500 range.

"Nifty has again closed near weekly highs.

The F&O data reflects that at current levels, still there is lot of outstanding short position in Nifty and Index Calls. We can expect another round of short covering," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

The 12,300 strike has highest Call OI of 15.22 lakh contracts followed by 12,500 strike with 13.93 lakh contracts and 12,400 strike with 11.96 lakh contracts.

The maximum buildup of Call OI (5.86 lakh contracts) was at 12,300 strike followed by 12,500 strike 5.85 lakh contracts.

Coming to Put side, 12,200 strike has highest OI of 17.41 lakh contracts followed by 12,000 strike with 16.55 lakh contracts and 12,100 strike with 15.46 lakh contracts.

Maximum Put OI addition of 4.72 lakh contracts recorded 12,250 strike followed by 4.62 lakh contracts at 12,200 strike and 4.51 lakh contracts at 12,300 strike.

"As per current derivatives data, Nifty can move towards 12,350-12,400 mark this week as the market undertone remains bullish with support of consistent short covering.

Derivative data indicates bullish scenario to continue with Nifty having multiple strong supports at lower levels, around 12,200 and 12,100 spot.

Currently, Nifty is moving up, with decent addition in Open Interest and options Put writing, which indicates strength in the current trend," said Bisht.

According to ICICI Direct.com, the 12,000 Put base for Nifty didn't see any closure despite the index coming below these levels during the week.

On pullback, OI additions were seen at 12,200 Put strike, which may act as immediate support for the index. The pullback may also extend towards 12,500, which has second highest Call base and significant OI buildup since the beginning of January F&O series.

"Option writers were seen active in recent rally as we have seen Put writing in 12,200 and 12,100 strike Puts along with unwinding in Calls.

Among Nifty Call options, the 12,500 strike Call has the highest Open Interest of more than 30 lakh shares, while in Put options 12,200 strike hold the maximum Open Interest of more than 35 lakh shares," remarked Bisht.

For the week ended January 11, 2020, BSE Sensex closed at 41,599.72 points, a net gain of 135.11 points or 0.32 per cent, from the previous close of 41,464.61 points.

NSE Nifty inched up by 30.15 points or 0.24 per cent and closed the week at 12,256.80 points as against last week's 12,226.65 points.

Bisht forecasts: "On the technical front, the 12,150-12,200-spot level is strong support zone and current trend is likely to continue towards 12,350-12,400." India VIX eased 0.50 per cent to 14.06 mark.

The drop in VIX is giving comfort level to bulls, observe derivative analysts.

The Implied Volatility of Calls closed at 11.90 per cent, while that for Put options closed at 12.20 per cent. The Nifty VIX for the week closed at 14 per cent and is expected to remain volatile.

The PCR OI for the week closed at 1.38, which indicates Put writing," added Bisht.

Nifty futures were up 0.18 per cent to 12,293 level on long build-up in cement, automobile stocks.

Bank Nifty

With a marginal gain of 28.15 points or 0.08 per cent for the week, Bank Nifty closed at 32,097.40 points as against 32,069.25 points.

The easing off geo-political tensions resulted in sharp recovery helping the banking index finally close the week almost flat.

Bank Nifty began the January derivatives series with low OI base and recording continued additions since then. With the increasing volatility, Bank Nifty recorded 35 per cent surge in OI, according to the data on ICICI Direct.com.

Derivatives analysts forecast that any move above 32,200 level will trigger another round of short covering.