High futures premium holds caution amid volatility

The Nifty began April F&O series on a sluggish note with low Open Interest (OI) indicating long closure during the recent weakness. However, the premium in April futures rose giving caution to investors. Normally, upsides in markets don't bode well with high premium. Hence, volatility may continue in the short-term. After upside movement in the February series, March F&O expiry recorded heavy selling pressure at higher level. Nifty declined over five per cent in the March series and Bank Nifty was a major under performer as it fell 10 per cent. On the OI front, the Nifty suffered six per cent reduction in the positions, indicating long unwinding in the index, according to sharekhan.com.

The Nifty witnessed extreme volatility during the March derivatives series and ended near the lows at 14,325. A recovery on Friday helped in reducing losses and the Nifty closed the week with losses of more than one per cent.Going ahead, analysts predict some consolidation for Nifty ahead of the result season.

The highest Call OI is seen at 15,000 strike followed by 14,700 /15,500/ 14,800/1,500 strikes, while reasonable addition of Call OI build-up is at 15,000 /15,100/15,500/ 14,800 strikes.

Coming to the Put side, the 14,000 strike recorded the highest Put OI followed by 14,300/ 14,500/14,400/13,800 strikes. Further, 14,500/14,000/14,300/14,200 strikes witnessed significant build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, the 14,300 Put strike witnessed some hefty Open Interest build up, while 14,700 and 14,800 strikes hold strong Open Interest build up in Calls."

Bisht forecasts: "From the technical front, Nifty can be seen trading in a downward sloping channel with formation of lower bottoms, which suggests that selling pressure is likely to persist on higher levels. Additionally prices are holding well below its short-term moving averages as well on daily charts. On downside, bears are likely to grip the markets once a slide below the 14,300 level seen. The strong support for Nifty is seen at 14,000 levels." From the options space, uniform activity can be seen near At The Money (ATM) Calls and Put strikes with no major difference in OI positions. Further, high valued options are indicating volatility for the week ahead, Derivatives analysts predict that the 14,700-14,900 range would be crucial for any change of trend. On downsides, recent lows near 14,300 may act as an immediate support to the NSE Nifty.

As per data from Sharekhan.com, the Nifty rollover for April was at 81.67 per cent versus 78.25 per cent. Bank Nifty's April month rollover was at 88.18 per cent versus 77.76 per cent, while market-wide rollover was at 84.13 per cent.

"Nifty index reclaimed 14,500 levels in Friday's session after ending March series on a negative note. Traders showed some buying interest at lower levels as metal stocks along with FMCG counters surged along with some madcap stocks," observes Bisht. The Nifty Futures began the April series with OI of 0.98 crore shares versus 1.05 crore shares in open interest.

The April F&O series started with Rs123,716 crore as against Rs134,900 crore in stock futures, Rs14,197 crore versus Rs15,854 crore in Nifty futures and Rs174,421 crore versus Rs 182,495 crore in index options and Rs38,354 crore versus 46,104 crore in stock options. "The Implied Volatility (IV) of Calls closed at 21.21 per cent, while that for Put options closed at 23.49 per cent. The Nifty VIX for the week closed at 22.70 per cent and is expected to remain volatile. Put-Call Ratio of OI for the week closed at 2.08," adds Bisht.

Bank Nifty

The NSE's banking index Bank Nifty closed at 33,318.20 points, a net fall of 843.40 points or 2.46 per cent from 34,161.60 points. The banking stocks remained in sluggish mode along with the auto sector. However, technology stocks may remain in focus ahead of their quarterly results The Bank Nifty commenced the April F&O series with 2.5 year high OI as weakness seen in the March series had resulted in fresh build-up of short positions. Any recovery is expected to be limited till any major closure of positions in the banking index.

According to data from ICICI Directt.com, the Call base at 34,000 strike holds significantly high OI indicating immediate hurdle for the banking index. A fresh positive bias can be made in the banking index if it is able to sustain above these levels only. The current price ratio of Bank Nifty-Nifty fell to 2.29 level. ICICI Direct.com expects the banking index to perform in line with the Nifty, while focus may shift to other sectors in coming weeks.

F&O Trading