Scattered OI indicating high volatility

The latest options data on NSE is pointing to wider trading range for the truncated week (market holiday on Mahashivratri, Tue, March 1) ahead (February 28-March 4). The resistance level eased by 500 points to 17,500CE and support level declined by 1,000 points to 16,000PE, as per the latest data available on NSE. The 17,500 strike has the highest Call OI followed by 18,000/ 17,000/ 17,200/19,800 strikes. Further, 17,500/17,400/ 17,000/17,800 strikes added moderate Call OI. Coming to the Put side, the 16,000 strike has a maximum Put base followed by 15,500/15,400/ 15,700/16,200/16,500 strikes. The 16,600/15,700/ 16,000/ 16,500 strikes recorded a reasonable addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, option writers were seen shifting towards far strikes, which point towards high volatility in the coming week as well."

From options data perspective, NSE Nifty began March derivatives series with 4-month high Open Interest suggesting some short build-up during settlement week. However, despite continued cash-based selling, FIIs have not turned negative in the F&O as they are just marginally short in index futures. At the same time, they are significantly long in stock futures suggesting accumulation at lower levels for March series, according to ICICIdirect.com.

From an options point of view, not just Nifty, but most stocks started the March F&O series below their Put bases. A recovery above Put base should bring some normalcy. However, during the process significant Call wring was also observed. Hence, a move above 16,800 may trigger a short covering move towards 17200 level.

"Bears took control over Indian markets in the week gone by as sharp selloff was witnessed across the sectors as Russia's invasion over Ukraine spurred volatility level on the domestic bourses," added Bisht.

For the week ended February 25, 2022, BSE Sensex closed at 55,858.52 points, a heavy loss of 1,974.45 points or 3.41 per cent, from the previous week's closing of 57,832.97 points. Registering a drop of 617.90 points or 3.57 per cent, NSE Nifty ended the week at 16,658.40 points from 17,276.30 points a week ago.

Bisht forecasts: "From technical front, NSE Nifty has breached its 200-day Exponential Moving Average on daily charts, which is placed at 16,720 level. We expect markets to remain on a roller coaster ride with bias likely to remain in favour of bears, while the 16400-16200 zone is likely to give support to Nifty."

Wild swings caused severe volatility to move to its highest level since June 2020. In the last session India VIX declined from 32 per cent to 27 level. Further cool-off may be seen if geopolitical tensions start showing signs of easing.

"India VIX rose towards a 20-month high. Implied Volatility of Calls closed at 26.92 per cent, while that for Put options closed at 27.49 per cent. The Nifty VIX for the week closed at 31.98 per cent and is expected to remain volatile. PCR of OI for the week closed at 1.95. For the upcoming week," said Bisht.

As per data available with sharekhan.com, NSE Nifty with a loss of 4.95 per cent expired at 16,250 points in February F&O series, while Bank Nifty registered a loss of 5.20 per cent. Nifty recorded an addition of 58 per cent and the index is starting the March series with 116.68 lakh shares in Open Interest. On the rollover front, Nifty rollover was 77.22 per cent as against 74.62 per cent in previous series and 3-month average of 78.70 per cent with a rollover cost of 24.75 points.

Bank Nifty witnessed an addition of 60 per cent in OI with a decrease in prices that indicates short build-up. The Bank Nifty saw a rollover of 76.23 per cent from previous 84.26 per cent and a 3-month average of 84.27 per cent with rollover cost of 15.6 points. With a low rollover, the Bank Nifty has seen shorts getting carried forward to the next series.

Bank Nifty

NSE's banking index closed the week at 36,430.75 points, a decline of 1,168.40 points or 3.10 per cent, from the previous week's closing of 37,599.15 points. "On another hand, Bank Nifty somehow still managed to close above its 200-day Exponential Moving Average on daily charts on the back of sharp short covering, seen in Friday's session, as the March series begins on a positive note. On the downside, 36000-35500 zone would act as strong support for Bank Nifty," observes Bisht.

Bank Nifty commenced the March F&O series with marginally higher OI base due to some short positions had been carried forward for the March series. If there are further price cuts in the index, then it is possible that fresh shorts may come as in the past few weeks. However, aggressive short additions in futures were not seen. It was more of a cash-based selling, according to ICICIdirect.com.