Distracted Open Interest buildup denotes the volatility

The coronavirus fear-triggered selloff across the board pulled the futures and options (F&O) series lower for fourth consecutive week as the NSE Nifty, Bank Nifty in March derivatives series fell 25.7 per cent and 35 per cent respectively. Reflecting the disturbed market sentiment, the volatility index shot over 300 per cent during the March derivatives series as India entered a 21-day lockdown phase amid looming coronavirus outbreak.

Nifty rollover to April derivatives series was at 62.1 per cent as against 77.6 per cent in March series and 66.3 per cent in February series. Overall market-wide rollover to April F&O series was 87 per cent as against 86 per cent to February series and 89 per cent to January series. The Nifty began the new series with just 10 million shares, which is the lowest Open Interest (OI) in more than a decade. Based on the F&O data, the options band is expected to be in the range of 7,700-9,200 points.

The 10,000 Call strike has highest OI of 13.63 lakh contracts followed by 9,500 strike with 10.27 lakh contracts and 10,500 strike with 8.10 lakh contracts. 10500, 10000 and 9500 strikes witnessed highest Call OI addition.

The 8,000 strike has highest Put OI of 9.94 lakh contracts followed by 8,500 strike with 8.48 lakh contracts and 7,000 strike with 9.20 lakh contracts. The highest Put OI buildup was seen at 8000, 7500 and 7000 strikes.

According to data from ICICI Direct.com, the NSE Nifty remained volatile and witnessed almost 40 per cent correction during the March F&O series on the back of continued selling from FPIs in line with the global markets. The recent correction is one of the steepest corrections for the Nifty and option writers don't have any significant presence in any strike. The major OI concentration is placed at Put 8,000 and Call 9,000 and 9,500 strikes for the coming week. Analysts expect the Nifty to find it tough to move beyond 9,500 in the ongoing recovery.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Indian markets began last week on a negative note, but somehow it managed to pare most of the losses during rest of the trading sessions to end the week with minor losses. After sliding back below the 7,550 mark, Nifty indices recovered sharply by nearly 1,000 points, to once again reclaim 8,650 levels on the back of short covering from lower levels. However, bears continued to grip the markets even after RBI announced repo rate cut of 75 basis points as sentiments worsened after RBI Governor admitted the growth projection of 4.7 per cent for the March quarter."

Markets recovered sharply during the settlement week and tested 9,000 level in anticipation of measures from the Finance Ministry and RBI. However, the indices gave away the gains and ended almost flat. The continued selling pressure seen across the globe during the last series has prompted closure of positions across the board. However, a sharp recovery seen in the last few sessions helped index futures to turn into premium. "From technical front, despite a V shape recovery from lower levels, Nifty will face a strong hurdle at 9,000 levels. On downside, however 8300-8100 zone would be a crucial support for the markets," forecasts Bisht.

India volatility index sharply rose to 86 per cent before the PM announced a nationwide 21-day lockdown. However, during the past one week, the volatility eased to 71 per cent and the market volatility may continue further, observes ICICI Direct.com.

"The Implied Volatility of Calls closed at 63.13 per cent, while that for Put options closed at 70.45 per cent. The Nifty VIX for the week closed at 71.53 per cent and is expected to remain volatile with bullish bias. PCR OI for the week closed at 0.58 indicating more Call writing than Put.

We expect markets to remain highly volatile in coming week as traders will keep a watch on any developments regarding updates on coronavirus spread," added Bisht. In the F&O space, FPIs bought index futures worth $841 million and sold stock futures worth $322 million amid high volatility.

Bank Nifty

Declining by 348.6 points or 1.71 per cent for the week, Bank Nifty closed at 19,969 points points as against 20,317.60 points. The Bank Nifty continued to decline for a fifth consecutive week, but recouped sharply in the last couple of sessions of the previous week.

The banking index recovered 25 per cent from the recent lows. Analysts expect sustainability above 20,000 as it'll be crucial for it in the coming weeks. Bank Nifty rollover to April F&O series was at 55.2 per cent as against 74 per cent to March series and 62.1 per cent to February series.