Nifty in range bound as new weekly options roll in

Nifty is set for range-bound trading in the week ahead as the highest volume of Open Interest (OI) of Calls and Puts has been concentrated at 11,000 strike. Among Nifty Call options, the 11000-strike has the highest Open Interest of more than 37 lakh contracts in Calls. For Put side also, 11000-strike has received the highest Open Interest of over 29 lakh contracts.

Dhirender Singh Bisht, senior analyst (derivatives) at SMC Global Securities, forecasts: “Sellers of Nifty option straddles will be comfortable if the index trades in the range of 10700-11300. Sellers of straddles are expecting Nifty to trade above 11,000 and then it turns bullish.” Futures and options (F&O) in the NSE’s derivatives segment will open a new chapter from this week onwards. Beginning from February 11 (Monday), 2019, NSE broad market index Nifty will be traded in weekly options. Nifty weekly option contracts will expire on every Thursday.

Hence, Nifty first series will expire on February 14 and second series will expire on February 21. The first series will have four days for expiry. “Since the first weekly series will have only four days in the first contract, there wouldn’t be much action and it’s likely to be range-bound,” said Bisht. For the week ended February 8, BSE Sensex and NSE Nifty rose 77 points and 50 points to end the week at 36,546.48 points and 10,943.60 points respectively.

“Nifty is trading between support and resistance. In recent sideways movement, Call writers and Puts writers were seen active. Therefore, Nifty is likely to trade sideways. Writers were seen active at 11000 and 11100 Calls and simultaneously selling in 10900 and 10800 strikes Puts,” added Bisht. The Put-Call ratio of OI for the week closed up at 1:61 and this indicates Put writing and support at lower levels. “On the technical front, 10850 and 10900 spot levels are the support zone and Nifty is most likely to trade in the band of 10900 to 11100,” remarked Bisht.

The Implied Volatility (IV) of Calls closed at 13.21 per cent, while that for Put options closed at 13.40 per cent. The Nifty VIX for the week closed at 15.44 per cent and is expected to remain sideways, he said.

Last Friday session witnessed surge in Call writing positions at 11000 and 11200. On the lower side, 10800 is considered to be a crucial support zone. Derivatives analysts expect that the rollover of lower short positions in the Nifty from January to February series may be able to lead some recovery after a brief consolidation. The highest Put from the start of the series has been at the 10700 strike, which may lead to more base formation.

After easing 92.75 points on Friday, Bank Nifty closed the week at 27,294.40 points. As the Bank Nifty entered the February series, volatility remained elevated due to RBI’s Monetary policy. The series started with lower leverage positions, but as the series progressed, OI additions in futures were seen. Just before the event, 11 per cent additions were seen in futures, according to data with ICICI Direct.

Profit booking continued in PSU banks, but few private banks attracted buying, which provided a cushion to the index. However, 27500 continued to act as a hurdle for the week. Traders took this level to write ‘Out of the Money’ (OTM) Calls that further kept the index move in check. Post-RBI meet, the Bank Nifty showed resilience compared to the Nifty, which saw broad based selling. The rupee strengthened against the US dollar, which will act as a positive trigger.