Bearish undertone amid more Call writing

With the broad-based index NSE Nifty consolidating near 11,800, the previous breakout level, more consolidation is forecast at this level in the wake of subdued volatility. The 12,000 strike and 11,900 strike have highest Call Open Interest (OI) of 21.88 lakh contracts and 21.71 lakh contracts respectively.

Highest addition Call OI was seen at 11,900 /12,000 strike range and this may act as major resistance level for the Nifty, while indicating bearish undertone in the market.

Highest Put OI is seen at 11,800 strike, which has over 10 lakh contracts, followed by 11,900 strike, while 11,500 strike recorded highest addition of OI numbering 2.15 lakh contracts. Nifty Put positions are placed at 11800 and 11500 strikes, which are noteworthy supports.

Since Call writers are active at 12,000 strike, this level is considered to be a major a hurdle for the June F&O series. Drop in Nifty premium is indicating some long closure in the index. Certain index heavyweights have seen writing in near the money Call strikes suggesting limited upsides in the current series.

Dhirender Singh Bisht, Senior Research Analyst (Derivatives) at SMC Global Securities Ltd, said: "Since the start of the week, the Call writers were seen active in 12,000 and 11,900 strikes, while marginal Put unwinding was witnessed in 11,700 strike.

Among Nifty Call options, the 12,000 strike (current week and monthly expiry) Call has the highest Open Interest of more than 46 lakh shares, while in Put options 11,500 strike (current week and monthly expiry) hold the maximum Open Interest of more than 23 lakh shares."

Short build-up was seen in both the Nifty and Bank Nifty as the broad-based index was down by 0.76 per cent and OI up by 1.57 per cent. Bank Nifty was down by 1.33 per cent and OI up by 4.48 per cent.

The Put-Call ratio of Open Interest for the week is at 1.35 from week high of 1.42 and it's showing more Call writing.

Volatility was eased during the previous week and this has happened on account of Call options writing that may keep the markets subdued. F&O analysts forecast further selling pressure below 11,800 strike, which may pull the Nifty towards 11,650 strike.

"The Implied Volatility of Calls closed at 14.98 per cent, while that for Put options closed at 15.32 per cent. The Nifty VIX for the week closed at 13.66 per cent and is expected to remain volatile.

The PCR OI for the week closed down at 1.35 from week high of 1.42, which indicates more Call writing," added Bisht.

For the week ended June 13, 2019, BSE Sensex closed on Friday at 39,452.07 points, a marginal loss of 163.83 points or 0.41 per cent, from 39,615.90 points.

Similarly, registering a marginal loss of 47.35 points or 0.39 per cent, Nifty too ended the week at 11,823.30 points as against 11,870.65 points.

"Tailing to its last week losses Nifty indices ended this week on negative note as well led by selling in FMCG, banking, auto and pharma counters. On the technical front, 11,750-11,700 spot levels are strong support zone and the current trend is likely to remain under pressure as far we are trading below 11,950.

In coming sessions, we expect that market undertone is likely to remain bearish as far we are trading below 11,950 levels. On downside, immediate support is placed at 11,700 level.

However, any slide below 11,700 can add further selling pressure, which could take Nifty towards 11,580 level as well," remarked Bisht.

Nifty futures closed at 11,829 level, a marginal loss of 0.83 per cent, while long buildup was recorded in select stocks such as Tata Communication, Jet Airways, Wockhardt, etc.

Bank Nifty

NSE banking index, Bank Nifty, closed the week at 30,614.35 points as against 31,066.55 points and suffered a loss of 452.2 points or 1.45 per cent.

The weakness likely to extend below 31,000 level as Friday's fall was seen mostly on the back of sluggish banking stocks. If the Bank Nifty slides below 30,500, weakness may persist in the Nifty, forecast analysts.

According to ICICI Direct.com, Call OI blocks are seen in 31,000 and 31,200 strikes, which can act as a key resistance this week.

FOMC meet during the later part of the week is likely to provide some cues for banking and financial stocks. However, looking at the rising OI in Calls, F&O analysts feel the upside in the index is limited. It could remain under pressure below 31,000 mark.