Options data indicates building up of support levels for Nifty

As the BSE Sensex closing in on the historical 50,000 mark, which is just a few sessions away, the market seems to be taking support levels, while scattered concentration of Open Interest (OI) on Put side is indicating volatility and uncertainty on upward move. The resistance level for the last week just moved up by 100 points from the previous 14,500 strike, while the support level notched up by 400 points to 14,600 points. From the options space, the 14,600 Call strike has the highest Call base, which is also the last week high for the index. Analysts advise investors to monitor FII activity as the buying volume declined gradually in the last couple of weeks, while expecting some consolidation in the ongoing result season.

On downsides, ATM 14,500 strike still holds noteworthy Open Interest despite Nifty trading below these levels. Sustainability below 14,500 might push the index towards 14,200 points in the coming sessions, observe derivatives analysts.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "After huge volatile moves, Indian markets managed to end the week on positive note once again. Nifty indices ended the week above the 14,400 level, while Bank Nifty also closed with gains of nearly half a per cent week-on-week. Traders were seen booking profits at higher levels ahead of the weekend as major IT, banking and financials witnessed selling pressure in the later part of the week."

As per the ICICI Direct.com data, on the back of this activity, 800 points OTM option is commanding a premium of 150 points, which is 25 per cent higher than normal days. This would give opportunity to option writers and as the week will progress, more writing could be seen in OTM strike Puts.

The 14,600 strike, which also witnessed maximum Call OI addition of 22.07 lakh contracts, has highest Call OI of 39.49 lakh contracts followed by 15,000 strike with 33.49 lakh contracts, 14700 strike with 29.02 lakh contracts, 14,500 strike with 28 lakh contracts and 14,800 strike with 26.98 lakh contracts. Further, the 14,500/14,700/14,800/15,000/15,300 strikes recorded reasonable build-up of Call OI.

Coming to Put side, the 14,500 strike has highest Put OI addition of 17.43 lakh contracts followed by 13,500 strike with 15.46 lakh contracts, 14200 strike with 14.56 lakh contracts, 13800 strike with 13.99 lakh contracts and 14,300 strike with 13 lakh contracts. 13,700/14200/ 14,000 strikes recorded a modest addition of Put OI.

From the derivatives front, Call writers added hefty Open Interest at 14,600 strike, while Put unwinding was observed at 14,500 strike. The Implied Volatility (IV) of Calls closed at 18.37 per cent, while that for Put options closed at 19.23. The Nifty VIX for the week closed at 23.03 per cent. PCR of OI for the week closed at 1.69 and it indicates more Put writing than Calls," remarked Bisht.

For the week ended January 16, 2021, BSE Sensex closed at 49,034.67 points, a gain of 252.16 points or 0.51 per cent, as against 48,782.51 points. NSE Nifty moved up by 86.45 points or 0.60 per cent and closed at 14,433.70 points from 14,347.25 points.

"Technical indicators suggest that markets are now likely to witness intraday volatility in upcoming sessions as well, as traders would wait for the upcoming union budget for any fresh triggers. However, we believe that the market stance is likely to remain in favour of bulls as far Nifty is holding above the 14,000 zone. Traders are advised to keep stock-specific moves on radar," forecasts Bisht.

Bank Nifty

The NSE's banking index Bank Nifty closed at 32,246.80 points, a net gain of 162.60 points or 0.50 per cent from 32,084.20 points. Sectorally, banking stocks should be in focus as heavyweights from the sector will be announcing results next week. For Bank Nifty, the Put base is 32,000 level and recorded fresh buying interest. The banking index on Friday reverted sharply in the second half from the lower level.