F&O data points to winding up of long positions

With D-Day for general elections results nearing, the investors turned cautious as domestic bourses witnessing low level buying interest amid negative global cues.

The key indices closed in red for an eighth consecutive week in the wake of ongoing general elections across the country. Derivatives analysts see rising discomfort level in the market ahead of poll results, which are scheduled on May 23.

In pre-election rally, Sensex rose 12 per cent from 2019 low of 35,287.16 points to al-time high of 39,487.45 points on April 18.

In 2014 elections, the Nifty started moving higher from the exit poll day when Nifty futures started seeing additions. This time, exit polls will be announced on May 19 and till this day, the index is expected to keep on consolidating.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Nifty has been dragged down due to liquidation of long positions.

Recent data has turned cautious and is indicating probability of further profit booking. Call writing and Put unwinding were seen in recent trading sessions.

Call writers were active in 11,300, 11,400, 11,500 strike calls indicating limited upside. This clearly indicates lack of buying interest and discomfort in the market."

On Call side, 11,500 strike has highest OI of over 20 lakh contracts followed by 11,400 and 12,000 strikes, while highest OI addition was witnessed at 11,300 strike.

Coming to Put side, 11,000 strike has highest OI of over 11.90 lakh contracts followed by 11,200, which recorded highest OI addition, and 11,300 strikes.

Bisht further elaborates that "the levels of 11,200 will remain crucial for this week as indicated by option Open Interest concentration.

The options Open Interest concentration is at the 11,500-strike calls (current week and expiry) with the highest Open Interest of above 28 lakh shares.

For Put options (current week and expiry), the 11,200-strike taking the total Open Interest to 18 lakh shares, with the highest Open Interest among Put options."

Volatility increased sharply after the US-China trade talks couldn't get through after the US President Trump statement. The volatility can increase further if the resolution to trade talks is halted, observe analysts.

"The Implied Volatility of Calls closed at 27.69 per cent, while that for Put options, it's closed at 28 per cent.

The Nifty VIX for the week closed at 25.49 per cent and is expected to remain volatile. The PCR OI for the week closed at 1.06, which indicates Put writing," adds Bisht.

NSE Nifty finished the week at 11,278.90 points, a net fall of 433.35 points or 3.6 per cent from 11,712.25 points as on May 3. Reflecting miniscule loss of 1,500.27 points or four per cent, BSE Sensex closed the week at 37,462.99 points as against 38,963.26 points in the previous weekend.

"If Nifty falls below the 11,200 mark, it could correct to 11,000 levels on the back of further selling. On the bounce, the index will face strong resistance at 11,400-11,450 levels. Next support is placed around 11,200-11,250 levels," forecasts Bisht.

Unlike Nifty futures, selling pressure was seen more in May16 option contracts. This shows subdued sessions can be seen for some more time in Nifty and thereafter as it approaches the election outcome pullback may be seen in the index.

Bank Nifty

Bank Nifty closed the week at 29,040.50 points, a loss of 913.65 points or 3.05 per cent, from the previous week's close of 29,954.15 points points.

The banking index was in the fastest retracement for the week since October 2018. Most of the private banks gave up the gains, which kept the index move in check.

According to ICICI Direct.com, the option OI blocks were seen in 29,000 and 29,200 strike Calls, whereas major Put OI blocks were seen at 28,500 strike.

Majority of the additions were seen in weekly contracts and no major OI additions were seen in monthly contracts indicating short term volatility.

Derivatives analysts feel major support for the Bank Nifty is at 28,500 strike and fresh buying interest can be seen if it manages to close above 29,200 levels.