Positive bias amid building up Call base

The addition of Call Open Interest (OI) at higher strikes is indicating upward journey of NSE Nifty for week ahead (September 16-20). The gradual build-up of a base at 10,900 level is continuously adding up the gains in a rising channel for the NSE Nifty, observe derivatives analysts.

The 11,100 strike has maximum Call OI of 1,790,925 contracts followed by 11,200 and 11,000 strikes. Highest OI addition of 5.19 lakh contracts was recorded at 11,200 strike and 4.54 lakh contracts at 11,300 strike.

On Put side, highest OI of 2,686,050 contracts was seen at 11,000 strike followed by 10,900 and 10,800 strikes.

"From the derivatives front, Put writers were seen active at 10,900 and 11,000 strikes, while marginal addition of Open Interest was seen in 11,100 strike.

The Nifty is gradually building up a base at 10,900 levels and continuously adding up the gains in a rising channel with formation of higher high and higher bottom," said Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities.

Nifty Put-Call ratio of OI moved moving higher last week from 1.08 to 1.40 on the back of Put options writing as indicated by reducing volatility. India VIX eased from 18 per cent to almost 14 per cent.

Bisht further added that "the Implied Volatility of Calls was up and closed at 14.17 per cent, while that for Put options closed at 15.32 per cent. The Nifty VIX for the week closed at 14.90 per cent and is expected to remain volatile. PCR OI for the week closed at 1.18, which indicates OTM Put writing."

Indicating sharp rise in the past five months, the Implied Volatility (IV) increased to 18 per cent. But, during the previous week, The IV was subdued owing to the back of huge writing in Out of the Money (OTM) Put strikes. As a result, the IV fell below 14.5 per cent and may remain choppy in the coming week. This situation may attract Put writing in the coming few sessions.

The market benchmark index BSE Sensex closed the week at 37,384.99, a net recovery of 403.22 points or 1.09 per cent, from previous week's close of 36,981.77 points. Registering a gain of 129.7 points or 1.18 per cent, NSE Nifty ended at 11,075.90 as against 10,946.20 points.

"From technical front, we expect that recovery in the Nifty will likely to continue towards 11,150-11,200 (spot) levels as the secondary oscillators are also showing positive divergence at lower levels, which should limit the sharp downside in prices on short term basis. For coming week, traders should use any dip as an opportunity to create long positions as far Nifty is trading above 10,900 levels," forecasts Bisht.

"The market undertone remained bullish for the Indian markets in the week gone by, as Nifty once again reclaim 11,050 levels in Friday's session on the back of sharp surge in oil & gas, auto, banking, FMCG and realty counters.

The sentiments in the domestic markets got a major boost as signs of progress in US-China trade talks helped calm fears of a global slowdown," observes Bisht.

According to data available from ICICI Direct.com, the highest Put base for the Nifty is at 11,000 strike. The Nifty has largely remained above this level last week. Analysts expect 10,950 to act as an important support for the index in coming sessions. Considering the highest Call base, the Nifty may attempt to move towards 11,200 level.

Bank Nifty

The banking index of NSE closed the week at 28,098.75, a net gain of 850.85 points or 3.11 per cent, from the previous close of 27,247.90 points.

The banking index recorded modest recovery and helped Nifty move higher despite technology stocks witnessing profit booking.

The current price ratio of Bank Nifty-Nifty, as per ICICI Direct.com data, reverted from its February low of 2.47. Analysts expect that on the back of short covering in banking stocks, the ratio could move towards 2.55 level.