Upward shift of Put OI addition holds positive bias
Unwinding of Calls OI at 11,200 strike; Put-Call ratio OI at 0.97 indicating Call writing in the recent rally; Nifty VIX at 28.37% and is expected to remain sideways
With squaring off short positions ahead of exit poll on Sunday, key indices recovered on the last session of the previous week.
The NSE Nifty and he BSE Sensex already rose 10 per cent from February low till April 18. Nifty may further rise 1.5 per cent if exit poll is in favour of BJP. Otherwise, gap down opening is expected, forecast derivatives analysts.
After the trading hours on last Friday, 12,000 strike has highest Call OI followed by 11,800 and 11,500 strikes. On the Put side, 11,000 strike has highest OI followed by 11,200 and 11,300 strikes.
11,300 strike recorded highest Put OI addition and this indicates a major support level as Put writers shift their focus higher levels.
Nifty witnessed unwinding of Calls OI at 11,200 strike.
Dhirender Singh Bisht, senior analyst (derivatives) at SMC Global Securities Ltd, said: "In the week gone by, smart recovery was seen in the market led by short covering from lower levels before exit polls.
Call writers covered their short positions and Put writers were seen selling Puts. Derivative data has again turned positive. Maximum put Open Interest (current week and next week) buildup of more than 37 lakh shares at 11,000 strike Puts, which should act as strong support zone."
Volatility in the domestic market rose sharply after the US-China trade talks didn't progress positively after the US President Trump statement.
Bisht further adds that "Implied Volatility of Calls was up and closed at 24.42 per cent, while that for Put options closed at 24.55 per cent.
The Nifty VIX for the week closed at 28.37 per cent and is expected to remain sideways. The PCR OI for the week closed at 0.97 indicating Call writing in the recent rally."
Registering a gain of 467.78 points or 1.24 per cent, Sensex ended the week at 37,930.77 points from 37,462.99 points.
For the week ended May 17, 2019, NSE's broad-based index Nifty rose 128.25 points or 1.13 percent and closed at 11,407.15 points from previous week's close of 11,278.90 points.
"On the technical front, 11,150-11,250 spot levels are strong support zone and current bounce is likely to continue towards 11,500-11,550 levels.
Nifty is most likely to trade in the range of 11,000-11,800 levels with positive bias and has support at lower levels. Various supports are 11,250 and 11,150 spot levels," forecasts Bisht.
However, NSE Nifty remained under selling pressure, barring Friday session, throughout the week as it fell over 400 points.
Selling was seen more in May 16 option contracts, but it was different for Nifty Futures.
It shows subdued sessions can be seen for some more time in Nifty and thereafter as it approaches the election outcome pullback may be seen in the index.
After a narrow range of trading on Friday, Nifty attracted short covering among sectors like banking, cement, metals and energy stocks. This pulled the market higher.
Looking at the recent OI build up at 11,300 Call strike, a move above these levels is important for a further recovery towards 11,500, observe analysts.
According to ICICI Direct.com, FIIs sold Rs 953 crore, while DIIs bought Rs948 crore in the cash segment.
FIIs sold index futures worth Rs820 crore, while in index options they sold Rs 2,012 crore. In the stock futures segment, they bought Rs 421 crore.
Bank Nifty closed the week at 29,450.15 points, a gain of 409.65 points or 1.41 per cent, as against the previous week's close of 29,040.50 points.
The Bank Nifty fell nearly 1,100 points last week, which was the fastest retracement for the week since October 2018, and recovered on Friday.
The renewed losses in private banks kept the pressure on the index. Despite major fall in Bank Nifty, there was no any fresh short addition and the recent fall was mainly on the back of long liquidation.
Derivatives analysts see majority of the additions in weekly contracts and no major OI additions were seen in monthly contracts. "It's indicating short term volatility.
Major support for the Bank Nifty is at 28,500 strike and fresh buying interest can be seen if it manages to close above 29,200 levels," they said.