Call writers turn aggressive

The latest options data on NSE points to heavy Call Open Interest (OI) build-up and reasonable addition of Put OI. The resistance level remained at 18,000CE for a third consecutive week, while the support level rose by 500 points to 17,000PE after the trading hours last Friday.

The 18,000CE has highest Call OI followed by 18,200/17,600 /17,500/ 18,50017,800/18,300 strikes, while 18,200/ 18,500/ 18,000/ 18,100/ 17,600/17,700/ 17,900 strikes added significant Call OI. Coming to the Put side, the 17,000PE recorded maximum Put OI followed by 17,500/ 16,500/16,700/ 17,600/ 16,700/ 16,900/17,300 strikes. Further, 16,700/17,600/ 17100/17700 strikes witnessed moderate build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers remained active at 17600 & 17700 strikes, while marginal Put writing was observed at 17500 strike."

According to ICICIdirect.com, Nifty started the expiry week with highest OI at ATM Straddle of 17500. However, as the buying spree continued, few Call positions shifted to 18000 strike with the expectation of more upsides. Put writing positions shifted to 17500 strike that commanded more than 60 lakh OI. Looking at the OI pattern and option set up, Nifty is expected to surpass 18000 in coming days. "Indian markets witnessed pre-Diwali rally in the week gone by as Nifty surged more than two per cent," adds Bisht. BSE Sensex closed the week ended October 21, 2022, at 59,307.15 points, a heavy rebound of 1,387.18 points or 2.39 per cent, from the previous week's closing of 57,919.97 points. Registering a net recovery of 390.60 points or 2.27 per cent, NSE Nifty ended the week at 17,576.30 points from 17,185.70 points a week ago. Bisht forecasts: "For upcoming week, we expect the market to remain sideways and is likely to trade in a defined range. Nifty is expected to trade in the range of 17350-17650, while Bank Nifty could hover in the range of 40500-41000 zone. Traders are advised to focus on stock-specific action as the index could remain sideways on the back of limited trading sessions next week."

India VIX rose 0.28 per cent to 17.28 level. "Implied Volatility (IV) of Calls closed at 16.25 per cent, while that for Put options closed at 17.53 per cent. The Nifty VIX for the week closed at 17.23 per cent. PCR of OI for the week closed at 1.23," observes Bisht.

FII net short positions declined marginally as their net short OI was about 80 lakh contracts last week against 92 lakh in the previous week. FIIs increased long bets in stock Futures to a volume of 65 lakh. Their long bets in stock Futures at one month high, buying momentum is expected to continue. Once short covering picks up pace in index Futures segment, the Nifty may surpass 18000 points. FIIs bought Rs6,600 crore in stock Futures and they remained high in the index Options as well.

Bank Nifty

NSE's banking index closed the week at 40,784.05 points, an encouraging rally of 1,478.45 points or 3.76 per cent, from the previous week's closing of 39,305.60 points. "Bank Nifty ended the week with gains of more than 3.5 per cent. The rally got supported by Axis Bank, which surged more than 12 per cent over the week and hit its 52 week high after Bank reported a good set of numbers for the quarter ended September," remarked Bisht. Closures across the Bank Nifty Call strikes are visible this week. Bank Nifty may test its September high of 41800 on the back of short covering in Call writing positions. In contrast, on the downside, the Bank Nifty will violate the 40000 level in the coming weeks. The current price ratio of Bank Nifty-Nifty moved higher to 2.31 level on the back of outperformance in banking stocks. The ratio may move towards the 2.35 level this week. Any dips in the index would be a buying opportunity.