OI spurt in Calls, Puts indicates sideways trading

The last shortened week (Dasara holiday on Oct 6) witnessed a recovery on short covering, while Open Interest (OI) among indices declined. Net short positions by FIIs declined marginally from almost 1.3 lakh to below one lakh contracts. Even in the stock Futures segment, FIIs took long positions as they cut their short positions.

However, net short OI is still on the higher side and short covering is likely to provide some support in case of declines with 17000 levels likely to act as important support levels, according to ICICIdirect.com.

The 18,000CE has the highest Call OI followed by 18,500/ 17,600/17,800/ 19,000 strikes, while 18,000/ 18,500/ 17,950/17750/ 17,700/ 19,000 strikes witnessed significant build-up of Call OI.

Coming to the Put side, 17,000PE has maximum Put OI followed by 16,500/17,200/ 17,300/ 16,400/ 16,300/ 17,100/16,900 strikes. Further, 17,000/17,200/16,800/16,500/ 16,400 strikes recorded reasonable addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Option writers can be seen active in both Calls and Puts, which points towards sideways moves in upcoming week. Nifty is expected to trade in a broader range of 17200-17500 levels. Technically, both the indices are holding well above their short and long term moving averages and expected to trade with positive bias. Moreover, we advise traders to keep focus on sector-specific and stock-specific actions."

Due to continued gap openings and high volatility, Options base was changing frequently and the major OI bases were seen at Call 17,500 and Put 17,000 strike for the coming weekly settlement. Analysts forecast NSE Nifty to gradually move towards 17500. Hence, the Nifty may consolidate in the near term in the broad range of 17000-17500.

"Indian markets rebounded last week after witnessing a sharp sell- off in the past couple of weeks as Nifty got supported by a rally seen in metal, reality and IT stocks. Nifty once again reclaimed 17,300 level in the week gone by while Bank Nifty ended the week with gains of more than 1.25 per cent," added Bisht.

BSE Sensex closed the week ended October 7, 2022, at 58,191.29 points, a net recovery of 764.37 points or 1.33 per cent, from the previous week's closing of 57,426.92 points. Registering a modest rebound of 220.30 points or 1.28 per cent, NSE Nifty ended the week at 17,314.65 points from 17,094.35 points a week ago.

Implied Volatility (IV) fell below 20 level as NSE Nifty continued to outperform its global peers. However, rising bond yields are likely to put pressure on the banking stocks. Technology and pharma stocks may outperform amid short covering ahead of their quarterly results.

"Implied volatility of calls closed at 17.93 per cent, while that for Put options closed at 19.06 per cent. The Nifty VIX for the week closed at 19.32 per cent. PCR of OI for the week closed at 1.67," said Bisht.

FIIs in F&Os segment curtailed some shorts during the recent market recovery as they bought over Rs2,500 crore last week in index Futures. The net short positions of FIIs in index Futures declined by almost 30,000 contracts during the week. At the same time, they have also covered their shorts in stock Futures segment to the tune of almost Rs1,700 crore as they finally took net longs in stock Futures. FIIs action remained high in the index Options segment and they bought over Rs18,800 crore during the last week.

Bank Nifty

NSE's banking index closed the week at 39,178.05 points, a net gain of 546.10 points or 1.41 per cent, from the previous week's closing of 38,631.95 points. "Bank Nifty is likely to face strong hurdles in zone of 39500 to 40000 level," observes Bisht.