Options data points to undertone bullish bias

The outstanding short positions in Nifty and index Calls pointing to further short covering in the week ahead. The highest Call Open Interest (OI) at 11,700 and 12,000 strikes indicates undercurrent bullish tone in the market.

The 11,700 Call strike has highest OI of 1,083,525 contracts followed by 12,000 and 11,800 strikes. On Put side, 11,600 strike has highest OI of 1,918,425 contracts followed by 11,500 and 11,400 strikes.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, forecasts: "The derivatives data reflects that at current levels still there is lot of outstanding short position in Nifty and Index calls and another round of short covering is expected.

As per current derivatives data, Nifty can move towards 11,800-11,850 mark this week as the market undertone remains bullish with support of consistent short covering. Derivative data points to bullish scenario to continue with Nifty having multiple strong supports at lower levels around 11,550 and 11,600 spot."

Currently, Nifty is moving up, with decent addition in Open Interest and options Put writing, which indicates strength in the current trend, said Bisht, while adding "Option writers were seen active in recent rally as Put writing were seen at 11,500 and 11,600 strikes along with the unwinding in Calls.

Among Nifty Call options, the 11,800 strike call has the highest Open Interest of more than 25 lakh shares, while in Put options, 11,600 strike hold the maximum Open Interest of more than 25 lakh shares."

The Implied Volatility (IV) of Calls closed at 13.13 per cent, while that for Put options closed at 13 per cent.

"The Nifty VIX for the week closed at 18.65 per cent and is expected to remain volatile. The PCR OI for the week closed at 1.19, which indicates Put writing," maintained Bisht.

For the week ended April 5, 2019, NSE Nifty closed at 11,665.95 points, a marginal net gain of 42.05 points from previous week's closing of 11,623.90 points. During the week, the BSE Sensex was at 38,862.23 points, gaining 182.32 points or 0.48 per cent, as against the previous week's 38,672.91 points. Sensex moved up for the seventh consecutive week.

"Nifty has again closed near weekly highs. On the technical front, 11,550-11,600 spot levels is strong support zone and current trend is likely to continue towards 11,800-11,850."

The Open Interest in Nifty during the April series remained subdued amid significantly high premium. High premium in the Nifty can also be attributed to lack of short positions formed in the ongoing series.

At the same time, volatility has tested 19 levels on the back of monetary policy announcement. However, ICICI Direct.com believes it will decline gradually going into the results season.

Bank Nifty

Shedding 343.15 points or 1.12 per cent, for the week, Bank Nifty ended the week at 30,084.65 points as against 30,426.80 points in the previous weekend.

Bisht further adds that "Bank Nifty's highest concentration on weekly contracts on Call side is at 30,500 with Open Interest of nearly five lakh shares, while on Put side, 30,000 Put strike has highest Open Interest with 4.1 lakh shares followed by 29,800.

On technical front, the expected range for Bank Nifty for the week is 30,700 to 29,800 and upside movement towards all-time high is on chart."

Volatility remained high due to RBI's Monetary Policy as the decision of only 25 bps cut has failed to cheer the banking sector. This resulted in profit booking, but 30,000 level acted as a strong support for the week.

The current price ratio of Bank Nifty-Nifty continued to remain above its two-year highs of 2.55. On the back of continuous buying by FIIs in equities, analysts don't see any major correction in near term.

Once the Bank Nifty manages to end above its sizeable Call base of 30500, more upside can be seen. This is likely to push the ratio towards 2.62.

Election impact on premiums

India VIX is a major factor that decides option premiums. The general election is scheduled between April 11- May 19 and the result day is May 23, 2019.

During April 11-19, India VIX will start rising and will be in range of 18-22 per cent until May 19.

Then from May 19, it will keep rising and may cross 22-25 per cent. After May 19, it will start to drop. If BJP wins again, NSE Nifty may surpass 12,300-12500. If BJP loses then Nifty may fall to 10,500.