Widening options band with volatility

Based on the options data after the trading hours on last Friday, highest Call OI concentration shifted to higher strike i.e 10,500 level, while highest Put OI is seen at lower strike of 9,000 mark. This is indicating the widening of options band to 1,500-points range as against 500-point range in the previous week.

The highest OI concentration in the previous week was at 10,000CE and 9,500PE.

The previous Call writers at 10000/10100 strikes may find it difficult to hold their positions. It's likely to result in continued short covering in these positions as the market is moving towards June expiry.

Thus, the positive bias in the index should be maintained above 10,100 level. However, Put-Call Ratio (PCR) of OI for Nifty is 1.40 indicating bearish tone for the market.

"From derivatives front, short covering was led by Call writers at 10,000 strike, which pushed Nifty indices towards 10,200 levels," said Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd.

The 10,500 strike has highest Call OI of 34.42 lakh contracts followed by 11,000 strike, which recorded maximum OI buildup of 9.16 lakh contracts, with 31.29 lakh contracts, 10300 strike with 25.07 lakh contracts and 10,400 strike with 22.71 lakh contracts.

Further, 10,500/10,600 strikes witnessed significant addition of Call OI. The 9,000 strike recorded highest Put OI of 81.81 lakh contracts followed by 9,500 strike with 40.19 lakh contracts, 10,000 strike, which recorded maximum Put OI addition of 10.41 lakh contracts, with 39.62 lakh contracts, 9900 strike with 37.71 lakh contracts, 9600 strike with 33.04 lakh contracts. 10,200/ 10,100/ 9,900/ 9,000 strikes recorded significant Put OI buildup.

"Indian markets witnessed a stunner rally last week on the back of sharp gains in financials and index heavyweight like Bajaj Twins and Reliance Industries.

Reliance made its all-time high after the company announced that it has become net debt-free after having raised Rs 1.68 lakh crore in under two months. Among other sectors realty, PSU banks and auto segments also supported the markets," added Bisht.

For the week ended June 12, 2020, BSE Sensex closed at 34,731.73, a net gain of 950.84 points or 2.81 per cent, from the previous close of 33,780.89 points. Similarly, NSE Nifty too rose by 271.5 points or 2.72 percent, and closed the week at 10,244.40 points as against lastweek's 9,972.90 level.

Bisht forecasts: "In coming sessions, now 10,000 level should act as crucial and major support for the Nifty and bias will likely to remain bullish as far Nifty is holding above that. On higher side, immediate resistance is placed at 10,350 above which follow up buying can be seen and Nifty can move towards 10,500 levels as well."

Put-Call Ratio (PCR) of OI for Nifty is 1.40 indicating strong bearish tone for the market. PCR of volume for Nifty at 0.81 is also holding bearish bias for the broad-based index. Put-Call ratio for index options, stock options and F&O total at 0.76, 0.50 and 0.72 respectively. "PCR OI for the week closed at 1.53 down indicates more Put writing as compared to Calls," remarked Bisht.

India VIX marginally declined by 1.48 per cent to 29.96 level. Volatility index eased for second session on Friday and this provided comfort to the traders.

"The Implied Volatility (IV) of Calls closed at 28.46 per cent, while that for Put options closed at 30.53 per cent.

The Nifty VIX for the week closed at 31.46 per cent and is expected to remain sideways. However, volatility is likely to grip markets in coming sessions as well," further added Bisht. Nifty futures rose 1.7 per cent to 10,246 level as RIL and BFSI stocks supported it.

Bank Nifty

Adding 983.55 points or 3.30 per cent for the week, Bank Nifty closed at 21,338.10 points as against 20,654.55 points. Volatility remained extremely high during the last week as the Bank Nifty declined to its sizeable Put base of 19,500 and reverted sharply above 21,000.

The main trigger emerged after the Supreme Court's decision to delay announcement on the moratorium case. Post this, broad-based participation was seen where apart from SBI and Kotak Mahindra Bank, all banks performed well.

Additions were seen in the last week at OTM strike Puts. Implied Volatility (IVs) remained elevated. Analysts feel that a decline towards 30 level can be seen and it'll benefit option writers.