Put OI addition indicating support levels moving up

As per the futures and options (F&O) data on NSE, the higher build-up of Put Open Interest (OI) is pointing towards support levels moving up. The support level has gone up by 500points when compared with the previous week. The 14,000 strike has highest Call OI of 31.06 lakh contracts followed by 13,500 strike with 24.31 lakh contracts, 13600 strike, which recorded maximum Call OI of 13.35 lakh contracts, with 24.19 lakh contracts and 13,800 strike with 20.95 lakh contracts.

The 14,000 strike also recorded significant Call OI build-up of 13.29 lakh contracts. Further, 13,500/ 13,550/ 13,700 strikes witnessed reasonable addition of Call OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "The wild swings were witnessed last week in Nifty as from derivatives front, Call writers at 13,600 strike tried to cap any sharp gains in Nifty, but bulls somehow manage to keep index well above 13,500 mark," remarked Bisht.

Coming to Put side, highest Put OI concentration of 23.77 lakh contracts was at 12,500 strike followed by 13,000 strike with 22.29 lakh contracts, 13500 strike, which recorded highest Put OI addition of 12.19 lakh contracts, with 20.61 lakh contracts and 13,300 strike with 17.76 lakh contracts. Other strikes 12,500/13,000/13,200 witnessed significant Put OI build up.

The continued writing among Put strikes has pushed the Put-Call Ratio (PCR) levels high and it has increased the probability of some intermediate profit booking in the market. On the higher side, the highest Call base for the week is placed at 13600 strike followed by 14000 strike. Hence further up move should be expected if Nifty remains above 13500 levels.

"Indian markets continued their winning streak for the sixth consecutive week, boosted by banking and FMCG space along with a strong rally in mid-caps. Nifty indices surpassed above 13,500 mark, while Bank Nifty also managed to close above 30,500 mark," remarked Bisht.

For the week ended December 11, 2020, BSE Sensex closed at 46,099.01 points, a net gain of 1,019.46 points or 2.26 per cent, as against 45,079.55 points. Similarly, NSE Nifty too moved up by 255.3 points or 1.92 per cent and closed at 13,513.85 points from 13,258.55 points.

Bisht forecasts that "from technical front, secondary oscillators suggest that volatility is likely to grip markets in the coming week as well. However, we expect the bias should remain in favor of bulls as Nifty is holding above 13,300 mark. On the higher side, a decisive move above the 13,600 mark would add further upside momentum into the index which could take it towards 13,750 level as well."

The volatility index, India VIX, moved up marginally due to some profit taking seen on Friday. However, the VIX remained below 20 level. Analysts don't see any major uptick in volatility index, the current positive bias should continue.

"The Implied Volatility of Calls closed at 15.68 per cent, while that for Put options closed at 16.07. The Nifty VIX for the week closed at 18.71 per cent. PCR of OI for the week closed at 1.84," further added Bisht.

Bank Nifty

The NSE's banking index Bank Nifty closed at 30,604.85 points, a net rise of 552.45 points or 1.83 per cent from 30,052.40 points. "For Bank Nifty, the 30,000 mark would be key psychological support," says Bisht.

Last week, Bank Nifty consolidated above 30,500 level. Among the private banks, HDFC Bank witnessed profit booking whereas supportive action was seen from other private banks and PSU leader SBI. Most of the private banks witnessed support from its sizable Put base and reverted higher due to which the Call writers moved to far OTM strike which is the positive sign.

According to ICICI Direct.com, Bank Nifty futures premium remained near 50 points, whereas the OI continued to decline. As the index sustained above 30,500 levels, fresh OI addition was seen in 31,000 strike, however, more upsides could be seen above this levels. Major Put OI writing activity is seen in 30,000 strike Put followed by 29,500 which remains the strong support zone.

The price ratio of Bank Nifty-Nifty remained flat last week as no major out-performance was seen in any of the index. However, we continue to feel that more upsides are left in banking stocks and going ahead, might see Bank Nifty heading towards 32,000 levels.