Option data signals bearish outlook

With highest Open Interest (OI) buildup at 11,500CE and 11,000PE, the NSE Nifty may hover in this range for the week ahead (August 3-7, 2020). As Nifty is in overbought zone, upside tick is mostly capped, observe analysts. Long positions are carried forward to August derivatives series and indicating short-term corrections. However, the lack of surge in long buildup is indicating consolidation or profit booking for the week ahead. After sharp upward moves in the last few weeks, the NSE Nifty has entered into some consolidation phase and it may consolidate around 11,000 level. The highest Put base for this series is placed at 11,000 strike followed by 10,800 strike. Positional support remains at 10,800 if any divergence is increased below 11,000 in the current consolidation. The highest Call base is placed at 11,500 strike followed by 11,300 strike. Stocks from IT, pharma, FMCG have shown promise of giving higher returns in the coming days.

The 11,500 strike has highest Call OI of 25.90 lakh contracts followed by 11,200 strike, which recorded maximum Call OI of 12.44 lakh contracts, with 25.24 lakh contracts, 11300 strike with 24.03 lakh contracts and 11,700 strike with 19.82 lakh contracts. Further 11,500 strike witnessed Call OI buildup of 9.96 lakh contracts, while 11,300/11,700/11,100 strikes witnessed significant addition of Call OI. Coming to Put side, 11,000 strike has maximum Put OI of 18.62 lakh contracts followed by 10,800 strike, which recorded highest Put OI buildup of 6.89 lakh contracts, with 17.39 lakh contracts, 10500 strike with 15.27 lakh contracts and 11,000 strike with 18.62 lakh contracts.

Further 10,400 /10,500/ 10,700 strikes registered sizable Put OI addition. Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "On derivatives front, Call writers were seen adding hefty Open Interest in 11,200 Call strikes, which should act as major hurdle for the index. However, on downside still 11,000 levels would act as crucial support for Nifty below which further selling pressure could drag the markets in coming sessions."

The July derivatives series concluded with 70 per cent rollover, as against previous rollover of 77 per cent and three-month average of 75 per cent, for Nifty and 55 per cent for Bank Nifty from 80 per cent to July F&O series. Nifty began the August F&O series with OI of 1.11 crore shares when compared with OI of 1.14 crore shares at the beginning of the July series. The overall market-wide rollovers stood lower at 88 per cent as against the average rollovers of 92 per cent in the last three series.

Bisht adds: "Indian markets felt selling pressure at the last day of July series future and options expiry with banking stocks suffered the most as sharp decline was observed in HDFC bank, ICICI Bank along with sell off in oil marketing companies. However, we begin August series on muted note with Nifty manage to hold 11,000 above levels." Snapping six-week rally, key indices closed in red for the week ended July 31, 2020, as BSE Sensex closed at 37,606.89, a net loss of 522.02 points or 1.36 per cent, from the previous close of 38,128.90 points. Similarly, NSE Nifty too declined by 120.7 points or 1.07 percent, and closed the week at 11,073.45 points as against last week's 11,194.15 level.

Bisht forecasts that "from the technical front, secondary oscillators are suggesting that volatility will continue to grip the markets in coming week and traders should remain focus on stock specific moves."

As the volatility still remained low near 24.50 level, analysts forecast positive consolidation in the index and expect more stock-specific moves to attract market participants amid range-bound market movement.

"The Implied Volatility (IV) of Calls closed at 23.20 per cent, while that for Put options closed at 25.84 per cent. The Nifty VIX for the week closed at 24.73 per cent and is expected to remain volatile. Put-Call Ratio of OI for the week closed at 1.73 down as compared to last week at 1.98 and it indicates more Call writing on upper strikes," remarked Bisht.

FIIs remained buyers for a second consecutive week as the Nifty moved beyond 11,000. FIIs bought Rs4,011 crore in Indian equities. Domestic institutions (DIIs) turned sellers at higher levels and sold Rs3,887 in equities last week. Due to the recent buying, for July, net FII investment in equities is around Rs7,650 crore including primary markets.

In the F&O space, FIIs were relatively low. While FIIs bought just Rs17 crore in index futures and sold to the tune of Rs892 in the stock futures segment during the week. However, FIIs have bought Rs 937 crore in index options.

Bank Nifty

Declining by 1,022 points or 4.50 per cent for the week, Bank Nifty closed at 21,640.05 points as against previous week's closing of 22,662.05points. Downsides in the banking space are limited as this space has already remained subdued. Stock- specific reversals from this space are expected. The market witnessed green shoots of some performance coming back in the PSU banking segment.