Restricted upside move amid long unwinding at higher bands

Long build-up on Put side at 17,500 strike price for September 22 expiry making short positions in market reveal limited upside move for the week ahead as the domestic stock markets are likely to consolidate in the near term, predict derivatives analysts. The resistance level moved up by 1,000 points to 19,000CE, while the support level remained unchanged at 17,000PE for six weeks in a row. The 17,500 should be an important support level, below which the weakness may extend towards 17,200 once again.

As per data from ICICIdirect.com, the Call options Open Interest in Nifty is higher than the Put bases. The Highest Put base of 40 lakh shares is at 17,500 strike, while 17800 Calls and higher strikes hold significantly higher OI with 18000 Call OI is almost 90 lakh shares. Hence, upsides seem restricted in the coming week. Only if it moves above 17800 once again should one expect a resumption of the uptrend.

The 19,000CE has highest Call OI followed by 18,500/ 19,500/ 18,000/18,200/ 17,800/ 18,100/ 18,400/ 18,300 strikes, while 19,000/ 17,800/18,500/18,200/17,600 strikes recorded hefty build-up of Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000PE followed by 16,800/ 17,300/ 17,500/ 17,700/17,800/17,400/ 17,200/16,900. Further, 17,000/ 17,400/ 17,500/ 17,400/ 17,100/ 16,800 strikes witnessed reasonable addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMCGlobal Securities Ltd, said: "From the derivatives front, Call writers remained active at 17600-17700 & 17800 strikes, while marginal Put writing was observed at 17,500 strike."

"In the week gone by, Indian markets witnessed hefty profit booking from higher levels as Nifty slipped back below 17600 level and ended the week in negative territory after two consecutive weekly gains," observes Bisht.

For the week ended September 16, 2022, BSE Sensex closed at 58,840.79 points, a net loss of 952.35 points or 1.59 per cent, from the previous week's closing of 59,793.14 points. Registering a fall of 302.50 points or 1.69 percent, NSE Nifty ended the week at 17,530.85 points from 17,833.35 points a week ago.

Bisht forecasts: "For the upcoming week, we expect markets to remain under pressure once again and volatile as well as marginal long unwinding has been observed at higher levels. However, on any downside, 17300-17200 zone would act as strong support for Nifty, while 17700-17800 zone is likely to cap upside in prices. We advise traders to focus on stock-specific action and avoid going long in index till further positive development in data."

Hemant Kanawala, head (equity), Kotak Mahindra Life Insurance Company Ltd, said: "As upside from valuation re-rating is limited hereon, the future performance and direction on the market will be driven by earnings upgrade and rollover. As investors await clarity on earnings upgrade and keenly monitor demand outlook, markets may continue to consolidate in the near term."

Kush Ghodasara, CMT, an independent market expert, further adds: "Last week, we witnessed long build-up on Put side at 17,500 strike price for 22ndSeptember making short positions in market. On the upside, we have seen tremendous writing at 18,000CE marking resistance for next week. We shall witness some short trades in market, if we sustain below 17,500 on Monday."

FIIs reduced their net short positions on a weekly basis. Volatility index has risen beyond 19 levels once again ahead of the Fed meet on September 21.

"Implied Volatility of Calls closed at 16.81 per cent, while that for Put option, it closed at 17.35 per cent. The Nifty VIX for the week closed at 18.39 per cent. PCR of OI for the week closed at 1.34."

Bank Nifty

NSE's banking index closed the week at 40,776.80 points, a further gain of 361.10 points or 0.89 per cent, from the previous week's closing of 40,415.70points. "Bank Nifty pared most of its gains in Friday's session and ended the week below 41000 level. However,the banking space outperformed overall Nifty as banking index ended the week with gains of nearly 0.75 per cent," added Bisht.