Street turns cautious ahead of F&O expiry

With January F&O series expiring this Thursday, the derivatives contracts indicate high volatility on the cards for the week ahead. According to NSE data, highest Calls OI volume of 44,32,000 contracts was at 11,000 strike, while highest Put OI volume of 32,73,750 contracts was at 10,800 strike recorded after the closing hours on Friday, January 25.

The Implied Volatility (IV) of Calls closed at 16.97 per cent, while that for Put options closed at 16.20 per cent. The Nifty VIX for the week closed at 18.09 per cent and is expected to remain sideways, observes Dhirender Singh Bisht, senior analyst (derivatives), SMC Global Securities Ltd.

The NSE Nifty ended the week at 10,780.55 points. “On Friday session Nifty slide down from day high and breaches 10800 support level.  The major factors are the rise in margin for F&O segment and volatility in global indices. Earlier, Nifty traded between support and resistance for last 10 trading sessions,” said Dhirender Singh Bisht, senior analyst (derivatives), SMC Global Securities Ltd.

“Writers are seen active in 11000, 10900 Calls and simultaneously selling 10800, 10700 strikes Puts. Among Nifty Call options, the 11000-strike Call has the highest Open Interest of more than 44 lakh shares and in Put side, 10800-strike put has the highest open interest of over 32 lakh shares in open interest respectively. The PCR OI for the week closed at 1:02 and this indicates unwinding of some Puts, while signaling caution.

On the technical front, 10650-10700 levels are the support zone and Nifty is most likely to expire in the band of 10750 to 10950 in the Jan expiry,” forecasts Bisht.

During the current F&O series so far, NSE Nifty added Open Interest of 17 per cent with a decline in premium from 54 to sub 30 levels. This is indicating short positions in the forming by market participants and this may get further rolled into February F&O series.

Nifty short build was not closed near 11000 levels and is getting rolled into the February series as well. Nifty breached its noticeable Put base of 10800 and if the broad index doesn’t recover immediately, the expiry week may witness selling pressure on account of closure of Put writing positions, predict analysts.

Bank Nifty closed the week in red at 27,115.30 points. For Bank Nifty, OI concentration for the settlement remained at Put 27000 strike and ICICI Direct expects these levels to remain crucial support for the banking index.

Only a move below these levels may induce fresh round of selling pressure which may take Bank Nifty towards 26200 levels towards settlement. The price ratio of Bank Nifty-Nifty continued to remain near its life-time high levels and the outperformance in banking stocks is likely to continue till the price ratio is above 2:51 level.