indicates OTM Call writing

With the highest Call concentration of Open Interest (OI) shifting to 11,600, bearish trend is forecast for the week ahead (July 22-26). Maximum Put OI at 11,300 may act as strong support for the Nifty, observe derivatives analysts.

The NSE Nifty was reeling under pressure as selling pressure triggered by FPIs and this pushed the highest Call base below 11,700 strike, which remains a short-term hurdle for the market on intermediate pullbacks.

The broad-based index is heading towards 11,300 Put strike, which gained huge OI since the Budget day.

"Nifty indices were hammered down badly in Friday's session and tested 2-month low. Nifty slid below 11,400 mark on back of long unwinding and short build up.

At current juncture, derivatives data indicates bearish scenario to continue as Call writers were seen active in 11,500 and 11,600 strikes along with Put unwinding.

The Call writers were seen to be shifting at the lower band, which suggest that bulls are likely to remain on the back foot as of now and bears will likely to keep control over the markets," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

For the week ended July 19, 2019, BSE Sensex shed 399.22 points or 1.03 per cent, to end the week at 38.337.01 points as against 38,736.23 points. NSE Nifty too shed 133.25 points or 1.15 per cent and closed at 11,419.25 points from 11,552.50.

"From the technical front as well, Nifty and Bank Nifty both indices slid well below their long-term support levels. On a higher side now 11500-11500 will act as a crucial resistance area for Nifty and current trend is likely to continue towards 11300 levels," forecasts Bisht.

Indicating possible resistance level, 11,600 strike has highest Call OI of 35.17 lakh contracts, followed by 11,700 strike (34.40 lakh contracts) and 11,500 strike, which has highest Call OI addition of 24.14 lakh contracts.

On the Put side, 11,300 strike has maximum Put OI of 30.44 lakh contracts followed by 11,400 strike and 11,000 strike. Highest Put OI offloading of 10.25 lakh contracts was seen at 11,600 strike, while highest OI addition of 7.69 lakh contracts is at 11,400 strike.

Put-Call ratio OI for the week was closed at 0.93 and this indicates Out of the Money (OTM) Call writing, said derivatives analysts.

Bisht further adds that "highest Open Interest Call concentration for this expiry is at 11,600 followed by 11,700 and 11,500, whereas Put at only 11,300."

According to ICICI Direct.com, volatility has reverted from lower levels, but it's still quite low near 12 per cent. Heavy selling in Call strikes led to these lower volatility levels and restricted the Nifty recovery above 11,700.

"The Implied Volatility of Calls closed at 10.79 per cent, while that for Put options closed at 11.35 per cent. The Nifty VIX for the week closed at 11.75 per cent and is expected to gain further.

PCR OI for the week closed at 0.93, which indicates OTM call writing."

Drop in Nifty futures Open Interest indicates liquidation of long positions. FPIs closed cash positions to the extent of Rs 1,400 crore just before the FM's announcement on FPI taxation.

Nifty future premium has been moving southwards in the last couple of weeks. Last week, it fell from 10 to -6 and has ended par to negative during the week.

This translates into current profit booking trend in the market. It may still take some time for the index to start getting the momentum back.

Bank Nifty

During the previous week, Bank Nifty shed 831.10 points, or 2.71 per cent, and closed at 29,770.35 points from 30,601.45 points.

During the previous week, the Bank Nifty continued its consolidation, but couldn't hold above 30,500 level as cash-based selling by FPIs pushed the banking index well below its sizeable Put base of 30,000 strike.

However, on the weekly expiry day, it closed below these levels which acted as a turning point.

ICICI Direct.com data indicates that the Call writing of OI blocks were seen at 30,200 strike, which would continue to act as a hurdle going forward.

On the lower side, Bank Nifty may decline towards 29,400 strike, which is more likely to be the target, going forward.