Marginal consolidation likely

The highest Open Interest (OI) at 12,000CE and 11,500PE is indicating trading range for the week ahead (September 21-25, 2020). Considering the options data, derivatives analysts forecast marginal consolidation within 11,500-12,000 points range.

According to ICICI Direct.com, the NSE Nifty after a long time recorded above average additions in At The Money (ATM) Straddle (11,500 Call & Put) for the main expiry week. The combined premium for this straddle is near Rs200 whereas IVs continued to decline and slipped below 20 levels last week. Analysts feel the index would consolidate for a few sessions with strong support for the week pegged at 11,300.

The 12,000 strike, which also recorded maximum Call OI build-up of 9.77 lakh contracts, has highest Call OI of 43.90 lakh contracts followed by 11600 strike with 34.47 lakh contracts, 11800 strike with 33.25 lakh contracts and 11500 strike with 32.46 lakh contracts. Further, 11,800/11,600/11,650 strikes registered reasonable Call OI addition.

The 11,500 strike has highest Put OI of 33.83 lakh contracts followed by 11,000 strike with 32.67 lakh contracts, 11400 strike with 24.65 lakh contracts, 11200 strike with 23.76 lakh contracts and 11,300 strike with 22.89 lakh contracts. 11,250 strike witnessed maximum Put OI build-up of 4.29 lakh contracts, while 11,200/11,550/ 11,450/10,900 strikes witnessed significant addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Nifty struggled to breach 11,600 mark. Pharma along with IT counter rallied the most. From derivatives front, tug of war continued between Call writers at 11,600 strike and Put writers at 11,500 strike."

With undercurrent positive bias, the NSE Nifty last week managed to test 11,600 level. However, Nifty couldn't hold on at this level due to profit booking in a few heavyweights at higher levels. Reliance Industries (RIL) remained muted whereas selling was seen in metals, FMCG, HDFC Ltd and banking stocks. IT, auto and pharma continued to move up and this provided a cushion to the index at lower levels. For the week ended September 18, 2020, BSE Sensex ended flat 8.73 points or 0.022 per cent lower and closed at 38,845.82 points from the previous close of 38,854.55 points. Similarly, NSE Nifty inched up by 40.53 points or 0.35 per cent, to end the week at 11,504.95 points as against last week's 11,464.45 level. Bisht forecasts: "For coming week, it is expected that market will continue to remain volatile once again with banking index continues to feel pressure. Nifty is expected to struggle to surpass 11,600 marks. Bulls may make a comeback only if Nifty move beyond 11,600 mark next week."

Volatility is expected to be high this week due to rollovers while major trigger in stocks would be based on the quantum of rollover. However, the overall bias for the index remains positive until it holds 11300. We feel pharma, IT, select metals and capital goods would do well in this consolidation.

"The Implied Volatility of Calls closed at 14.98 per cent, while that for Put options closed at 15.64 per cent. The Nifty VIX for the week closed at 20.04 per cent. Put-Call ratio of OI for the week closed at 1.02 slightly down from the previous week indicating Put unwinding in OTM and Call writing," remarked Bisht.

In F&O space, FII sold Rs2,299-crore worth index futures and to the tune of Rs2,527 cr in the stock futures segment. However, FIIs bought Rs4,394 crore in index options during the week.

Bank Nifty

Shedding 448.9 points or 1.99 per cent, Bank Nifty closed at 22,031.05 points as against the previous week's closing of 22,479.95 points. A sharp sell-off on Friday pulled the Bank Nifty below 22,000 level. However, at the fag-end, on the back of OTM Put writing, the index managed to close well above 22,000 along with a rise in premium over spot.

"Once again weakness in banking stocks continued to weigh on Indian markets as Bank Nifty settled the week with loss of more than 1.50 per cent. Among sectors Private Bank, along with PSU banks and financial services suffered losses," added Bisht.

IVs continued to remain choppy despite sharp whipsaws last week whereas major OI concentration for the week was seen at 22,000 Put strike, which is very important for the Bank Nifty. Analysts forecast a sell-off only if the index manages to close below 22,000.

NSE's banking index in the current consolidation phase remained a laggard as it failed to find any sustainable momentum despite most private banks being near their support and highest Put base for the September expiry at 22,000 levels.