Restricted upward movement amid heavy Call writing

As per the latest options data (after Friday trading) on NSE, the resistance level moved up by 300 points to 18,000CE, while the support level remained unchanged at 17,000PE for four weeks in a row. Derivatives analysts predict a range-bound upward movement as heavy writing taken by Call writers.

The options data points to the higher Call writing compared to Put strikes and 18,000 strike remained the highest Call base. The OI Put base is almost half of the Call base and it indicates a continued hurdle at higher levels. Thus, closure among these shorts can be expected if the Nifty moves above its Call bases. The 18,000CE strike has highest Call OI followed by 17,800/ 18,500/19,000/18,100/ 17,900/ 17,700 strikes, while 17,700/ 17,00/ 17,900/ 18,00/ 18,100/18,300/ 18,400/18,500 strikes witnessed reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000PE followed by16,500/17,500 /17,300/ 17,100/ 16,900/ 16,800/16,600/ 16,400/ 16,300 strikes. And 16,500/ 6,900/17,000/ 17,200/17,400/17,500 strikes witnessed moderate build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Over the week, option writers were also seen adding hefty Open Interest at 17600 & 17700 Call strikes, while marginal Put writing was observed at 17,500 strike."

Kush Ghodasara, CMT, an independent market expert, explains: "While on the option side, we saw most writing at 18,000 CE with highest OI with 1,06,738 contracts, while on Friday, we witnessed some writing at 17,600 and 17,700 CE too. While on Put side, we have seen some short covering at 17400 and 17300 making our support for next week. Though in the worst case scenario, even 16500 Put has most Open Interest making it a possible support if further sell-off continues. To sum up, upside seems restricted heavily with Call writers, while on downside a small support is shown at 17300 below which it could be a free fall."

As per ICICIdirect.com, during the recent weakness, NSE Nifty witnessed accumulation of fresh shorts at higher levels and FII net shorts increased from 13,000 contracts to more than 60,000 contracts. At the same time, the premium in the Nifty declined sharply along with these shorts. The index may remain range bound for some time before witnessing any directional move. Hence, a short covering rally towards 18000 can be expected if the Nifty moves above 17700. "Indian markets remained highly volatile in the week gone by as NSE Nifty is seen trading in broader range of 17,200-17,700 levels, while banking index remained outperformer and ended the week with gains of more than one per cent," added Bisht.

For the week ended September 2, 2022, BSE Sensex closed at 58,803.33 points, a further fall of 30.54 points or 0.051 per cent, from the previous week's closing of 58,833.87 points. Registering a marginal decline of 19.45 points or 0.11 per cent, NSE Nifty ended the week at 17,539.45 points from 17,558.90 points a week ago. Bisht forecasts: "From the technical front, secondary oscillators suggest that volatility is likely to grip Indian markets in upcoming week and traders should focus on stock-specific action. On the higher side, 17800 would likely act as strong resistance for Nifty, while the 17200-17000 zone will support any sharp downside in prices." Volatility index India VIX declined by 1.62 per cent to 19.55 level. "Implied Volatility of Calls closed at 17.46 per cent, while that for Put option, it closed at 18.98 per cent. The Nifty VIX for the week closed at 19.87 per cent. PCR of OI for the week closed at 1.45," remarked Bisht.

FII trading in the F&O space increased marginally as they built-up fresh short positions. The net shorts in Index Futures rose sharply to 60,000 contracts.

FIIs sold nearly Rs2,500crore in Index Futures and over Rs3,000 crore in stocks Futures. FIIs' net longs in stock Futures declined sharply to the lowest seen since May 2022. "Derivatives data has been crazy for last week where we saw FII building up net shorts on Index Future and Index Stocks with Nifty being in strict range," observes Ghodasara.

Bank Nifty

NSE's banking index closed the week at 39,421 points, a gain of 433.85 points or 1.11 per cent, from the previous week's closing of 38,987.15 points. "On the other hand, the banking index is likely to face hurdles in the zone of 39800-40000 levels and may continue to outperform in coming sessions," remarked Bisht.