Put writers shifting to higher bands

The resistance level for NSE Nifty remained at 12,500 strike for a second week in a row, while support level moved up by 500 points to 12,000 strike indicating narrowing of the trading range.

After recording extreme volatility in the October, November F&O series began with a sharp up move as the NSE Nifty moved towards 12,200 amid ongoing uncertainties prevailing to US elections. With broader market participation, the Nifty moved up over five per cent last week, while mid-cap and small-cap indices also witnessed a significant recovery. Going ahead, analysts forecast the current momentum to continue in the market. Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Indian markets ended last week on a positive note with Nifty surging more than five per cent. From the derivatives front, Call writers at 12,000 strike triggered short covering, while Put writers shifted to higher bands."

From the options space, the NSE Nifty Put base moved up over 12,000 strike and it should act as major support for the index. Hence, it's a positive bias for the Nifty and the market benchmark may sustain above these levels. In the last couple of sessions, significant Put writing was seen in ATM Put strikes of 12,000 suggesting expectations of limited downsides in the short-term. On the higher side, the highest Call base of 12,500 seems to be an immediate target for the index.

Highest Call OI of 19.26 lakh contracts was seen at 12,500 strike, which also recorded maximum Call OI build-up of 6.15 lakh contracts, followed by 12,700 strike with 18.39 lakh contracts, 13000 strike with 18.18 lakh contracts, 12200 strike wtih 13.50 lakh contracts and 12600 strike with 12.04 lakh contracts. Further, 12,200/12,300/12,450 strikes witnessed reasonable addition of Call OI. Coming to Put side, 12000 strike has highest Put OI of 30.06 lakh contracts followed by 12100 strike with 22.23 lakh contracts, 11500 strike with 19.09 lakh contracts, 11800 strike wtih 18.12 lakh contracts and 11900 strike with 15.42 lakh contracts. Highest Put OI build-up was seen at 12,200/12,100/12,000 strikes.

For the week, BSE Sensex closed at 41,893.06, a net gain of 2,278.99 points or 5.75 per cent, as against 39,614.07 points. Similarly, NSE Nifty too moved up by 621.15 points or 5.33 per cent and closed at 12,263.55 points from 11,642.40 points. "On the technical front, Nifty has major support in the zone of 12,000-11,900 and any dip into prices should be used to create fresh longs. On the higher side, the 12,500 would be major resistance for Nifty," forecasts Bisht.

During the week, the volatility index (India VIX) moved back towards 20 per cent from highs of 26 per cent seen last week despite lingering uncertainty over US elections. Even US VIX has declined substantially from highs of 40 per cent to below 30 per cent. Thus, overall positive bias should be maintained till there wouldn't be any change of trend in the volatility index.

"Nevertheless, volatility is likely to grip the market in the coming sessions as well with bias likely to remain in favour of bulls. The Implied Volatility (IV) of Calls closed at 18.06 per cent, while that for Put options closed at 20.14. The Nifty VIX for the week closed at 20.97 per cent. PCR of OI for the week closed at 1.49 down from the previous week," remarked Bisht.

Bank Nifty

The Bank Nifty concluded the October F&O series with a sizable Put base of 24,000. The NSE's banking index closed at 26,798.95 points, a net rise of 577.4 points or 2.41 per cent from 23,900.90 points.

"Bank Nifty taking the lead with whopping gains of more than 12 per cent. The up move was supported by a sharp surge in HDFC and Bajaj twins along with positive moves witnessed by Axis Bank, ICICI Bank and IndusInd Bank," said Bisht.

The Bank Nifty rose by over 2,700 points and registered its one of the best weeks since September 2019. The Open Interest in the stock rose almost 18 per cent along with price rise indicating the rally was supported by fresh long accumulation. The derivatives analysts predict that the IVs are likely to stay near 20 per cent, while the ongoing trend of accumulation would continue.

As per the data from ICICI Direct.com, the highest Call base for Bank Nfity is placed at 27,000 level, whereas major OTM Put writing was seen in 26,000 and 25,500 strikes. Positionally, the 25500 remains a very strong bet for the index whereas a close above 27,000 would open the gates for another 1,000 points on the higher side.

Derivatives Trading