Put OI shifting to higher band

A mix of short covering and long positions led the upward movement in the key indices last week. The highest concentration of Put Open Interest (OI) moved from 9,200 strike to 9,800 strike. Highest Put OI buildup is seen at 9,900 strike.

This is indicating upward movement of support levels. The previous week closed on a strong note as OI rose 11 per cent as against six per cent of Nifty. The broader trading range is likely to be 9,500-10,500 range for the week ahead.

Futures and options (F&O) data holds the 10,200 strike as resistance and 9,800 strike as support levels for NSE Nifty. Hence, Nifty may move between 9,800 and 10,200 amid high volatility.

On the derivatives front, additions are seen in ATM 10,000 Call and Put strikes. This may result in consolidation before crossing the 10,200 hurdle.

Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd, said: "From derivatives front, Put writers are now shifting to higher band, which suggests rally to continue in coming sessions as well and bulls are likely to keep control over the markets."

Nifty recovered from the major Put base of 9,000 and ended higher towards the weekend. If Nifty holds the crucial hurdle of 9,500, then it will enter into new higher territory, which should lead to good stock-specific action, observe derivatives analysts. On the lower side, the 9,300 should extend support.

The Put Open Interest increased at 9,200-9,300 strikes.

The 10,200 strike has highest Call OI of 15.79 lakh contracts followed by 10,500 strike 17.97 lakh contracts, 10,300 strike, which recorded maximum Call OI addition of 11.22 lakh contracts, with 17.95 lakh contracts and 10,400 strike with 12.96 lakh contracts.

Coming to Put side, the 9,800 strike witnessed highest Put OI of 17.56 lakh contracts followed by 10,000 strike with 15.90 lakh contracts, 9,500 strike with 15.70 lakh contracts. The 9,900 strike recorded highest Put OI buildup of 8.51 lakh contracts. 10,000/ 10,100/ 9,800 strikes witnessed significant Put OI addition.

"Indian markets ended the week on positive note once again with Nifty reclaiming the 10,100 level on the back of sharp surge in banking stocks after State Bank of India posted good quarterly numbers and surged nearly eight per cent in single trading session," observes Bisht.

For the week ended June 5, 2020, BSE Sensex closed at 34,287.24, a net gain of 1,863.14 points or 5.74 per cent, from the previous close of 32,424.10 points. Similarly, NSE Nifty too

rose by 561.85 points or 5.86 percent, and closed the week at 10,142.15 points as against last week's at 9,580.30 points. The key indices posted the biggest weekly gain since October 2017.

The market analysts term it as Fear of Missing Out (FOMO) phenomenon in the market, which may witness consolidation next week before another leg of rally. Technology, metal and telecom stocks were active, whereas profit taking recorded in BFSI and select consumption stocks.

Bisht further forecasts: "However, from technical front, 10,250 level would act as immediate hurdle for Nifty as 200 days exponential moving average is placed on weekly charts, above which further upside can be seen till 10,400 level as well. On the downside, now 10,000 would be crucial support and will act as psychological level for Nifty."

Indicating stable market, the volatility fell sharply below 30 per cent. India VIX eased over three per cent to 28.68 level. "The Implied Volatility of Calls closed at 27.62 per cent, while that for Put options closed at 28.57 per cent.

The Nifty VIX for the week closed at 29.69 per cent and is expected to remain sideways. PCR OI for the week closed at 1.68 up as compared to last week at 1.52, which indicates more Put writing than Calls. For coming week, we believe that any dip into prices should be use to create fresh longs as bias is likely to remain bullish for Nifty," remarked Bisht.

According to data from ICICI Direct.com, FIIs bought Rs2,905 crore, while DIIs sold Rs847 cr in the cash segment. FIIs sold index futures worth Rs1,266 crore and bought Rs1,228 cr in index options. In the stock futures segment, FIIs bought Rs 722 cr.

Bank Nifty

The NSE banking index recorded a reasonable upward journey thanks to the short covering. Recovering by 1,737.25 points or nine per cent for the week, Bank Nifty closed at 21,034.50 points as against 19,297.25 points. Bank nifty OI rose just one per cent.

Despite witnessing buying in last session of the previous week, Bank Nifty failed to measure the momentum. However, PSU banking stocks recorded a recovery. Majority of mid-cap bank stocks recorded profit booking whereas late selling in leading private banks also added more pressure.

This led to profit booking at the end of the day. Going by the OI data, analysts forecast limited upside movement as major Call OI is at 21,000 and 21,500 strikes. These levels should act as hurdles on the upsides.