Put writers shifting to higher bands

The futures and options (F&O) data is pointing to the support level higher by 400 points, while the resistance level remains at 16,000 strike. The highest concentration of Call OI is at 16,000 strike followed by 15,500/15,000/15,200 strikes. Coming to the Put side, 14,000 strike has the highest Put OI followed by 14,500/13,500/13,000 strikes. Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said:

"From derivatives front, short covering was done by Call writers at 14,500 and 14,700 strikes, while Put writers were seen shifting to higher bands." As per the data on ICICI Direct.com, a significant Call option concentration was at ATM 15,000 strike for both weekly and monthly settlement. Further closure of positions can take the index above these levels. On downsides, incremental Put writing was seen at 14,700 strike, which remains immediate support for the index. The Nifty has started the new series with relatively low Open Interest and despite the recent up move, no major OI accumulation was seen suggesting low leverage.

"Indian markets surged sharply high in the week gone by as both the indices marked their lifetime highs. Nifty moved above 15,000 levels and corrected, while Bank Nifty also tested 36,600 level posting their best weekly advance since April 2020," remarked Bisht.

The NSE Nifty exhibited a strong reversal post-Budget and witnessed one of the best weekly returns since 2009 as the key indices gained almost 10 per cent during the week. Once again, the banking stocks took the lead and the Bank Nifty recovered 20 per cent in the week triggered by both PSU and private-sector heavyweights.

Bisht forecasts: "From the technical front, secondary oscillators suggest that markets are likely to remain volatile in upcoming sessions with more likely stock-specific action. However, derivatives data also suggests that a tug of war between bulls and bears is likely to keep Nifty indices in broader range of 14,700 to 15,000 levels. However, the next upside in the index would continue once Nifty surpassed above 15,000 levels decisively."

Despite the sharp up move, the volatility index India VIX has remained elevated and did not move below 23. While closure among Call writers can be attributed to elevated volatility, analysts predict drop in volatility from onwards. Sustainability at current levels may be considered a sign of caution after recent sharp upsides.

The Implied Volatility of Calls closed at 20.08 per cent, while that for Put options closed at 21.47. The Nifty VIX for the week closed at 23.12 per cent. Put-Call Ratio of OI for the week closed at 1.62 and it indicates more Put writing than Calls," added Bisht. FIIs turned net buyers and bought Rs 6,115 crore in equities after the Budget announcement. On the other hand, domestic institutions avoided any major buying and turned net buyers of just Rs 56 crore in equities during the week. While the major moves were seen in infra and banking, stocks from the pharma and technology space relatively underperformed. In the F&O space, FIIs remained net buyers as they bought index options to the tune of Rs 8,136crore, while they sold Rs 469 crore in index futures and Rs 93 crore in the stock futures.

Bank Nifty

The NSE's banking index Bank Nifty closed at 35,654.50 points, a net gain of 5,089 points or 16.64 per cent from 30,565.50 points.

Bank Nifty futures rallied about 5,450 points last week and managed to surpass its Call base of 36,000. However, post the RBI monetary policy, profit booking was visible and it reverted sharply from higher levels. IndusInd Bank, SBI and Axis Bank outperformed other banking stocks, whereas supportive price action was also there in other PSU banks. Even after the announcement of Budget and RBI policy, IVs continue to remain at elevated levels, which provided added advantage to option writers. Deep OTM strike, which is 2,000 points away, witnessed a good build-up in OI positions indicating broader trading range in coming days.

The sizeable Call base for the Bank Nifty is placed at 36,500 from where it reverted last Friday whereas the highest base is at 37,000 strike. Analysts predict profit booking and that may push Bank Nifty to test its intermediate support of 35,000 from where rally towards 37,000 is possible.

F&O Trading