Put OI build-up signals support shifting higher

Highest Open Interest (OI) concentration at 11,450CE and 11,400PE after trading hours on Thursday (holiday on October 2) as against 11,500CE-10,000PE in previous week is indicating higher movement of Put strikes, while undertone remains range-bound. Lower volatility is giving further room for upward movement.

The 11,450 strike, which recorded maximum Call OI addition of 31.84 lakh contracts, has highest Call OI of 47.25 lakh contracts followed by 11,500 strike with 42.25 lakh contracts, 11400 strike with 19.21 lakh contracts and 12000 strike with 15.16 lakh contracts. Significant unwinding of Call OI was seen in the range of 11,400-11,200 strikes.

Coming to the Put side, 11400 strike, which witnessed maximum Put OI bu‎ild-up of 40.47 lakh contracts, recorded highest Put OI of 40.47 lakh contracts followed by 11,300 strike with 36.74 lakh contracts, 11000 strike with 33.74 lakh contracts and 11,350 strike with 32.46 lakh contracts. Further, the 11,300-11,350 strikes recorded reasonable Put OI addition.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers at 11,300 & 11,400 strikes triggered short covering and seen shifted at 11,500 Call strike, which will act as immediate hurdle for Nifty in coming week."

The first week of the October series witnessed recovery amid significant volatility. However, NSE Nifty may find stiff resistance around 11,300 in a couple of sessions, the Nifty finally moved above the stated resistance with a gap due to positive global developments. For the coming week, no major Call option positions are visible and maximum writing is seen at 11,200 and 11,300 strikes suggesting immediate support for the index.

The relative Call option positions are visible at 11,500 strike, above which the Nifty may attempt to test its previous highs of 11800, according to ICICI Direct.com. Derivatives analysts expect that the Nifty to consolidate with a positive bias with support around 11,200.

The Nifty recovered the losses in the last week on positive global cues as expectations of a new stimulus by the US government before US election enhanced the market sentiment. Despite FII selling, the NSE Nifty gained almost three per cent last week.

For the week ended October 2, 2020, BSE Sensex recovered by 1,308.39 points or 3.38 per cent and closed at 38,697.05 points from the previous close of 37,388.66 points. Similarly, NSE Nifty gained 366.7 points or 3.31 per cent, to end the week at 11,416.95 points as against last week's 11,050.25 level.

Bisht forecasts: "Nifty also managed to end the week above the key resistance level of 11,400 mark. From technical front as well 22500 for bank nifty would act as strong resistance level. In coming week, we expect markets to remain choppy while bias will still likely to remain bullish as far Nifty is trading above 11,200 levels."

Volatility moved below 19 level after testing 23 in the penultimate week. Analysts see positive bias may continue in the broader markets till volatility does not move above 22 level.

"The Implied Volatility of Calls closed at 15.54 per cent, while that for Put options closed at 18.61. The Nifty VIX for the week closed at 18.35 per cent. PCR of OI for the week closed at 1.34 slightly down from the previous week indicating Put writing," added Bisht.

Bank Nifty

Moving up by 1,263.65 points or six per cent, Bank Nifty closed at 22,246 points as against the previous week's closing of 20,982.35 points. Weekly settlement saw sharp short covering among banking heavyweights, which led Bank Nifty to close above 22,000.

"Indian markets rallied sharply last week with Bank Nifty leading the run to settle the week with gains of more than 3.5 per cent," remarked Bisht.

The BFSI segment witnessed a sharp recovery as the banking index also moved above 22,000 on settlement. Significant Call writing for Bank Nifty was seen at 22,000 strike, while sustainability above it may trigger another round of short covering.

The banking index, which was declining from 22,000 strike in the last week of September and moved towards 20,000 level. Significant Call writing was recorded at this strike. As per ICICI Direct.com, with the Bank Nifty closing above these levels, further short covering can't be ruled out. For the recovery to continue, the Bank Nifty should sustain above 21,500 strike.

For the coming weekly settlement, the major Call base is placed at the 23,000 strike while Put base is at ATM 22000 and 21,500 strike as per the data at ICICI Direct.com. Hence, a short covering move may continue in the coming week if the Bank Nifty sustains above 22,000. Analysts feel that ongoing momentum in the private sector space may continue due to short positions remaining intact.