Market has steam as Call writers hold short positions

The upward move of resistance level by 400 points to 16,300 strike is indicating the undercurrent positive bias in the market, while the support level declined by 200 points to 15,500 strike. The options data is holding a wider range of trading for the week ahead (August 9-13, 2021). The highest Call OI was at 16,300 strike followed by 16,400/ 16,500/ 16,800/ 16,600 strikes. Further, 16,500/16,800/ 16,600/ 16,550 strikes recorded significant addition of Call OI. Coming to Put side, 15,500 strike, which also witnessed maximum Put OI build-up, had the highest Put base followed by 16,000/ 16,200/15,800/15,300 strikes. 15,800/15,400/ 16,000/ 16,150 strikes recorded moderate addition of Put OI.

On the options front, significant option writing was experienced at 16,000 Put base. This level may hold even in case of some profit booking in the short term. On the higher side, analysts predict that Nifty may move towards 16,450-16,500 strikes in the coming sessions.

The NSE Nifty moved out of the prevailing range of 15,600-15,900 last week and gained over three per cent as significant outperformance from the BFSI space.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Nifty hit record high in the week gone by and settled the week above 16,200 level. After a lot of attempts in the recent past, finally NSE Nifty surpassed above 16,000 level on the back of short covering done by Call writers."

For the week ended August 7, 2021, BSE Sensex closed at 54,277.72 points, a net gain of 1,690.88 points or 3.21 per cent, from the previous week's closing of 52,586.84 points. Registering an encouraging gain of 475.15 points or 3.01 per cent, NSE Nifty ended the week at 16,238.20 points from 15,763.05 points a week ago.

Bisht further added that "from technical front, index has given a sharp breakout after a prolonged consolidation of nearly two months. In upcoming sessions, it is expected that the bulls may keep control over markets as still a lot of short positions are held among Call writers. On the higher side, the 16,300 level would act as an immediate hurdle for NSE Nifty, while bias will remain bullish as the 16,000 level is held on downside."

Nifty futures Open Interest has increased to the highest levels seen since March as range-bound movement seen in the last couple of months has eroded Nifty Open Interest significantly. The current Open Interest in the Nifty is more than 25 per cent higher than that seen in the July series. On similar lines, net longs from FIIs have also increased sharply. Till we don't see closure of positions, positive bias should continue.

Volatility index India VIX moved back to sub 13 level amid no sign of any caution despite the Nifty making fresh lifetime highs. A buy on decline strategy should continue for the index till the volatility index remains below 14.5 level.

"The Implied Volatility of Calls closed at 10.82 per cent, while that for Put options closed at 11.31 per cent. The Nifty VIX for the week closed at 12.87 per cent. PCR of OI for the week closed at 1.77," observes Bisht.

The significant buying from FIIs also helped the benchmark index surpass the psychological resistance of 16,000 points. However, momentum has paused a bit among mid-cap and small-cap spaces as the Smallcap index closed the week negative.

FII trading in the F&O space rose significantly as the market picked up the upward movement. With the Nifty surpassing 16,000 points, FII activity surged in stock futures sharply. FIIs were net buyers in index futures worth Rs507 crore, Rs3,965 crore in stock futures and Rs2,886 crore index options.

Bank Nifty

NSE's banking index closed the week at 35,809.25 points, a net recovery of 1,224.90 points or 3.54 per cent, from the previous week's closing of 34,584.35 points. "The rally was joined by the banking index as well in the later half of the week as Bank Nifty once again hit 36,000 level, but could not manage to close the week above that," remarked Bisht.

NSE's banking index Bank Nifty started the August F&O series with higher OI base and as the series progressed, there's closure in OI positions and it indicated a clear sign of short covering. Most of the bank's quarterly numbers are out and in the absence of any major negative, this short covering trend should continue, according to ICICI Direct.com, which observes that due to RBI policy, volatility remained elevated. However, no change in policy stands is likely to keep the momentum intact and the Bank Nifty should head towards 36,500 level.

The current price ratio of Bank Nifty-Nifty moved to 2.21 level, which rallied from 2.18. Analysts feel that outperformance in banking stocks should push this ratio further higher.

F&O Trading

Product Contracts Turnover (Rs/cr) Premium (Rs/cr)

Index Futures 2,22,922 19,210.27 --

Stock Futures 7,80,995 64,443.86 --

Index Options 3,27,09,056 28,31,906.26 13,849.02

Stock Options 26,58,176 2,26,576.78 4,485.80

F&O Total 3,63,71,149 31,42,137.17 18,334.82