Options data holds upside move amid losing steam

The drop in Out of the Money (OTM) Call and Put option premiums indicates that the option writers are active and the market is likely to remain range bound for the week ahead (July 13-17, 2020). The overall Put-Call Ratio (PCR) at 0.92 is indicating neutral market. The 11,000CE and 10,000PE strikes recorded highest Open Interest (OI) as on July 10 and may act strong resistance and support levels. Though overall trend is positive, the volumes are not encouraging and indicating that the markets are losing the buying volumes. Hence, investors are advised to trade with caution, alert derivatives analysts. After reaching 10,800 level, the NSE Nifty seems to be in consolidation mode as indicated by declining volatility and reducing option premiums.

The 11,000 strike recorded highest Call OI of 25.91 lakh contracts followed by 10,800 strike with 23,26 lakh contracts, 10900 strike, which witnessed maximum Call OI addition of 12.62 lakh contracts, with 20.54 lakh contracts and 11,300 strike with 19.71 lakh contracts. The 11,000 and 10,800 strikes recorded significant Call OI buildup during the last week.

The 10,000 strike, which also witnessed maximum Put OI buildup of 10.82 lakh contracts, recorded highest Put OI of 22.82 lakh contracts followed by 10,700 strike with 18.79 lakh contracts, 10,600 strike with 18.55 lakh contracts, 10500 strike with 17.40 lakh contracts and 10400 strike with 14.05 lakh contracts.

"From derivatives front, Call writers were seen adding hefty Open Interest in 10,800 and 10,900 Calls, which point towards limited upside in prices. However, on downside 10,700 and 10,600 levels should act as strong support levels from technical front. Overall we expect markets to remain in consolidation zone in coming week with some stock specific action on radar. The broader structure still remains positive for both the indices, so any dip into prices should be used to create fresh longs," says Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd.

Registering longest weekly gain since December 2019, key indices posted fourth consecutive weekly upward move. Further Nifty and Sensex rose in six out of the seven weeks. "Nifty rallied for the fourth consecutive week and ended with gains of nearly 1.5 per cent backed by sharp surge in some of the front line names TCS, Reliance, HDFC and Bajaj Finance," added Bisht.

For the week ended July 10, 2020, BSE Sensex closed at 36,594.33, a net gain of 572.91 points or 1.59 per cent, from the previous close of 36,021.42 points. Similarly, NSE Nifty too rose by 160.70 points or 1.51 percent, and closed the week at 10,768.05 points as against last week's 10,607.35 level.

India VIX fell below 25 level after hovering near 30 in the last series. "The Implied Volatility of Calls closed at 21.61 per cent, while that for Put options closed at 24.28 per cent. The Nifty VIX for the week closed at 24.91 per cent and is expected to remain sideways. PCR OI for the week closed at 1.62 and indicates more Put writing as compared to Calls," maintained Bisht.

The Nifty futures discount eased and this is indicating short covering in the index. Further closure of short positions should keep the index above 10,600 level.

In the F&O space, the buying was witnessed in the index futures and options segment. FIIs bought over Rs1,801 crore in index futures and Rs2,902 cr in options. Liquidation to the tune of Rs1,367 crore was seen in the stock futures segment in the last the week as per the data from ICICI Direct.com.

Bank Nifty

Adding 546.05 points or 2.49 per cent for the week, Bank Nifty closed at 22,398.45 points as against 21,852.40 points. According to ICICI Direct.com, the banking index managed to move above 23,000 level, but Call writers of OTM strike dominated at higher levels. Implied Volatility (IV), however, remained muted despite all the volatility with writing seen in OTM strikes.

Analysts opine that Bank Nifty relatively underperformed in this current leg of Nifty from 10,200 to 10,800 whereas stock-specific activity continued in the banking stocks. However, as Nifty paused its pace near 10,800 level, the focus turned to BFSI. Short covering rally was seen

in private as well as PSU banks along with sharp up-move in NBFC.

Despite huge OI in ATM Calls in private banks, several banking stocks recorded significant buying support from lower levels, whereas mid-cap banking stocks also saw short covering. Analysts further forecast rupee strengthening as the Dollar index slipped below 97 level. It's further observed that the ongoing short covering may continue in the NBFC space. OTM Put writers would provide a cushion and limit downsides in case of a reversal. However, a close above 23,000 would open the gates for new targets.