High Call writing points to marginal upside

The consolidating phase of NSE Nifty around 2018 high of 11,750 may continue till June F&O expiry as writing in OTM Call and Put options is expected to keep the broad-based index within a limited range.

Call writers were active in Nifty June 12,000 and 11,800 options, however, simultaneously 11,500 and 11,700 Put options have also seen writing. This action has led to current consolidation, observe derivatives analysts.

Indicating profit booking at higher levels, Nifty futures have seen long liquidation to the tune of 11 per cent. This is where this series is not expected to witness any major recovery.

At the start of the June series, addition was seen at ATM Call strikes of certain heavyweights with short bias, which have been dragging the index under pressure.

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

Recent data has turned cautious and is indicating probability of further profit booking. We have seen Call writing and Put unwinding in recent trading sessions. Call writers were active in 11,900, 11,800 strike calls indicating limited upside."

For the week ended Jun 21, 2019, BSE Sensex closed at 39,194.49 points, a net loss of 257.58 points or 0.65 per cent, on Friday from the previous week's close of 39,452.07 points.

Registering a net drop of 99.2 points or 0.83 per cent, NSE Nifty ended the week at 11,724.10 points, as against 11,823.30 points. Technical charts indicate Nifty may slip towards 11,500 if it fails to hold 11,650 mark.

"If Nifty falls below the 11,700 mark, it could correct to 11,600 levels on the back of further profit booking. On bounce the index will face strong resistance at 11,800-11,850 levels. Next support is placed around 11,700-11,650 levels," forecasts Bisht.

Money flow is seen in technology heavyweights, while banking stocks have remained lackluster. This indicates towards a range bound scenario prevailing in the current consolidation.

Volatility has remained subdued and been below 15 per cent. No major surge in volatility has restricted the downsides in the market.

Bisht further adds that "the Implied Volatility of Calls closed at 12.84 per cent, while that for put options closed at 13 per cent.

The Nifty VIX for the week closed at 14 per cent and is expected to remain sideways. The PCR OI for the week closed at 1.43 which indicates put writing."

Put-Call ratio of Open Interest after Friday trading hours was at 1.43 and it's indicating Put writing, said the derivatives analyst.

"The levels of 11,700 will remain crucial for this week as indicated by option Open Interest concentration.

The options Open Interest concentration is at the 11,800-strike Calls with the highest Open Interest of above 32 lakh shares; among Put options, the 11,700-strike taking the total open interest to 34 lakh shares, with the highest open interest among Put options.

Bank Nifty

NSE Bank Nifty index ended the week at 30,628.35 points, a marginal loss gain of 14 points from as against the previous week's close of 30,614.35 points.

The Bank Nifty has been witnessing profit booking since the beginning of June future and options (F&O) series. After correcting nearly 1,600 points, fresh buying interest was seen in the last couple of days.

According to ICICI Direct.com, Bank Nifty is in support formation near 30,200 from where it rallied nearly 550 points.

In this current rally, most private and PSU banks further moved up barring Axis Bank that corrected to Rs760 levels from Rs 820, while another stock that corrected among midcap private banks was Yes Bank.

The data from ICICI Direct.com further reveals that Put OI is well distributed in OTM strikes till 30,000 whereas Call OI blocks are seen at 30,800.

IVs have contracted sharply post RBI policy and remained choppy since then indicating range-bound market.

The derivatives analysts predict that if the Bank Nifty ends above 30,800, short covering can be seen, which is likely to push the index towards 31,200 level.