Options data points to range-bound trading

The NSE Nifty couldn't sustain above 15,000 points as it closed below 14,700 points in the truncated last week (Eid-ul-Fitr holiday on Thursday) amid global weakness. The Nifty has been largely in a broader range during the past few months, while stock-specific trading was witnessed amid ongoing earnings season. Nifty may continue its range bound bias with intermediate pivot levels of 14,700 level.

For the week ahead, sustainability of 14,700 seems crucial for fresh positive bias from a trading perspective. From the options perspective, continued writing was seen at ATM Calls and Put strikes suggesting range-bound bias to continue with significant activities seen at OTM Call strikes. Derivatives analysts hold the view that sustainability above 14,700 is expected to trigger closure among Call writers, which may pull the Nifty towards the higher band of the consolidation. On downsides, levels near 14,500 would provide support to the index.

Even mid-cap and small-cap stocks recorded some profit taking in the last couple of sessions and both indices lost almost three per cent from highs.

After remaining at 16,000 strike for two consecutive weeks, the resistance level eased by 500 points to 15,500 strike, while support level continued to be at 14,500 level for three weeks in a row.

The 15,500 strike, which also recorded maximum addition of Call OI, has the highest Call OI followed by 15,300/ 14,800/ 14,900/15,400 strikes. 15,300/ 15,100/ 15,000/ 14,900/14,800 strikes witnessed significant Call OI build up. Coming to Put side, the 14,600 strike has maximum Put OI followed by 14,500/ 14,400/ 14,700/ 14,100 strikes. Further, 14,600/ 14,400/ 14,200/ 14,700 strikes recorded reasonable addition of Put OI.

BSE Sensex closed the week at 48,732.55 points, a net fall of 472 points or 0.96 per cent, from 49,206.47 points. NSE Nifty too declined by 145.35 points or 0.98 per cent to 14,677.80 points from 14,823.15 points.

Foreign Portfolio Investors (FPIs) turned net sellers during the week as they sold to the tune of Rs1,356 crore pulling the key indices lower by one per cent. In the F&O space, FIIs were primarily seen in the stock futures and index options segment. FIIs were net sellers in the index futures segment worth Rs2,696 crore and also they sold stock futures to the tune of Rs5,530 crore. However, FIIs bought index options worth Rs7,352 crore.

Bank Nifty

NSE's banking index Bank Nifty fell 734.95 points or 2.23 per cent to 32,169.55 points from 32,904.50 points. The Bank Nifty for a fourth consecutive week traded in a range with stock-specific action. Short Strangle strategies continue to make money, which is pointing towards further consolidation being possible.

Banking and technology stocks were the major draggers and ended the week near lows. Metal space also saw some cool-off after a sharp surge was seen in the last couple of months. However, heavyweights like Reliance Industries and FMCG stocks came to the rescue as the Nifty was able to close in the vicinity of 14,700. It expects the banking space to take the lead for the Nifty movement towards 15,000 in coming sessions.

Bank Nifty recorded offloading of positions as nine per cent closure was observed in Open Interest. However, lack of formation of short positions is indicating limited downsides.

IVs remained choppy on a weekly basis due to which option premiums also fell sharply. Analysts forecast that unless there's any major spike in IVs, the current leg of consolidation in the Bank Nifty should continue.

Major support for the index is placed at 31,000 whereas on upsides, last week's high should act as a supply zone. Hence, short Strangle of 1,000 points OTM strikes could be the strategy for the week, according to ICICI Direct.com.