Call writers turn aggressive amid moderate Put base

With declining support level, the options data after closing hours of Friday session on NSE holds an undercurrent bearish mode in the market. The support level fell by 1,000 points to 15,000PE, while resistance level remained at 17,000CE for a consecutive second week. The 17,000CE has the highest Call OI followed by 16,800/16,500/16,000/16,150/ 16,400 strikes. Further, significant Call OI is seen at 16,800/16,500/ 16,100/17,000 strikes. Coming to the Put side, the 15,000 strike recorded highest Put OI followed by 14,650/ 14,800/15,100 /15,500 /15,400/15,700 strikes, while 14,500/14,600/ 14,700/ 14,900/ 15,400 strikes witnessed moderate build-up of Put OI.

ICICIdirect.com says that significant Call writing positions are visible at 16,000 strike and higher, while the Put base is significantly low compared to Call option bases.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers are seen adding hefty Open Interest at 16000 & 16100 strike, while Put writers hold marginal Open Interest at 15800 strike."

Even from an options perspective, significant Call writing positions are visible at 16000 strike and higher while the Put base is significantly low compared to Call option bases. NSE Nifty may spend some time making wise corrections. Only a move above 16,200 may provide further momentum to the recovery process.

"Weakness continued in the Indian market as once again ended the week on a negative note as heavy sell off in metal, banking and power counter kept Nifty under pressure over the week. Nifty shed more than 3.5 per cent, while Bank Nifty witnessed a cut of more than four per cent week on week basis," adds Bisht.

For the week ended May 13, 2022, BSE Sensex closed at 52,793.62 points, a major loss of 2,041.96 points or 3.72 per cent, from the previous week's closing of 54,835.58 points. Registering a continuous fall of 629.10 points or 3.83 per cent, NSE Nifty ended the week at 15,782.15 points from 16,411.25 points a week ago. On a week-on-week basis, OI rose marginally along with deep cuts in price indicating fresh short additions during the week.

Bisht forecasts: "From technical front, Nifty can be seen approaching its 100 DEMA on weekly charts which is placed around 15400 level. We expect markets to remain under pressure in the coming week as well on the back of continuous capital outflow on every rise. Below 15800 levels, we could witness fresh round of selling in Nifty, while 16100 level will likely act as strong resistance level for the index."

"Implied Volatility of Calls closed at 21.49 per cent, while that for Put options closed at 22.13. The Nifty VIX for the week closed at 24.27 per cent. PCR of OI for the week closed at 1.01 lower than previous week, which indicates more Call writing than Put writing during the week," remarked Bisht.

Volatility index India VIX fell 3.20 per cent to 23.48 level. However, the volatility index is hovering above 23 level tracking global cues. Sustainability below 22 is crucial for the broader uptrend to resume. Sectorally, pharma stocks may exhibit some resilience, while short covering can be seen in metal and banking stocks.

FII positions remain on the short side and their net shorts in Index futures reached 1.25 lakh contracts, which is on the higher side. Hence, closure of positions should be looked at for any short covering move. Since Nifty futures OI has not increased and it is still near 1 crore shares, covering the trend to take the Nifty towards 16500 in coming sessions, according to ICICIdirect.com.

FIIs remained negative in the cash segment and for May they sold close to Rs25,000 crore. Along with this, they also turned negative in the index future segment where their net short contracts are more than 1.25 lakh. Until these short positions don't close, upsides may be capped.

Bank Nifty

NSE's banking index closed the week at 33,121.35 points, a marginal decline of 1,469.85 points or 4.24 per cent, from the previous week's closing of 34,591.20 points. "Bank nifty has closed below its 100-Day Exponential Moving Average on weekly charts which is not a good sign for index," observes Bisht.

The Bank Nifty has a sizable Put OI position at 33000 strike, below which another 1000 points fall is expected. Last Friday even when the Nifty remained above its weekly low, the Bank Nifty made a new weekly low, which clearly points towards weakness. The index should now face stiff hurdles near the 34000-34500 range, according to a study by ICICIdirect.com.