Volatile trading likely ahead of F&O expiry

With October derivatives series concluding on Thursday (Oct28), the trading is likely to be volatile for the week ahead (October 25-29) as per the options data on NSE. The futures and options (F&O) October series witnessed a series of record-setting sessions as BSE Sensex and NSE Nifty moved on to notch up all-time high levels. The resistance level rose by 650 points to 19,000CE, while support level further declined by 850 points to 17,500PE. The widening gap (1,500pts) between highest Put OI base and Call OI base is indicating more volatility, observe derivatives analysts.

The 19,000 strike has the highest Call OI followed by 18,200/18,400/18,300 strikes, while Call OI built-up is seen at 19,000/ 18,300/18,200/ 18,800/ 18,500 strikes. Coming to Put side, 17,500 strike recorded maximum Put OI followed by 18,000 / 17,800/17,700/ 17,500 strikes. Further, the strikes 17,500/ 18,000/ 18,100/ 18,000 witnessed moderate addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers remained active at 18200-18300 & 18400 strikes, while Put writers hold maximum Open Interest at 18000 strike and seen not adding much Open Interest at lower levels. This shows that bulls are not feeling comfortable at current levels."

Since May 2021, the NSE Nifty has been undergoing minor corrections up to three per cent. Considering VWAP of the September F&O series, the 18,050 level is also placed around the correction level. A move below 18,050 points may extend the current profit booking leg. Hence from a short-term perspective, longs should be avoided below this level.

"Indian markets remained mixed during the week as NSE Nifty slipped sharply from its record highs on the back of profit booking, while Banking index outperformed other sectors to end the week in green zone," added Bisht.

For the week ended October 22, 2021, BSE Sensex closed at 60,821.62 points, a net loss of 484.33 points or 0.79 per cent, from the previous week's closing of 61,305.95 points. Registering a decline of 223.65 points or 1.21 per cent, NSE Nifty ended the week at 18,114.90 points from 18,338.55 points a week ago.

Bisht forecasts: "For upcoming week, we expect markets to remain on a volatile path on the back of October series expiry. On the lower side, now the 18000-17900 zone is likely to give support to Nifty while 18400 is a strong hurdle level."

For the most of the series, the 18,000 Call strike held the highest Call base and any move above this given sharp up move towards 18,600points, based on which analysts predict that these levels should extend support on downsides. However, breach of these levels may push the index towards 17,600 in coming sessions, according to ICICI Direct.com.

India VIX declined 2.72 per cent to 17.54 level. The volatility index India VIX is indicating caution in the market and after recent outperformance a leg of profit booking cannot be ruled out.

"Implied volatility (IV) of Calls closed at 16.75 per cent, while that for Put options closed at 17.31. The Nifty VIX for the week closed at 18.04 per cent. PCR of OI for the week closed at 0.79," remarked Bisht.

Bank Nifty

NSE's banking index closed the week at 40,323.65 points, a net recovery of 982.5 points or 2.49 per cent, from the previous week's closing of 39,340.90 points. The NSE banking index, which started witnessing fresh moves, is expected to continue its outperformance and may support markets in case of extended profit booking seen in technology and consumption stocks. The F&O data on ICICI Direct.com indicates that the banking index has surpassed its highest Call base placed at 40,000 strike and significant closure was observed in the last two sessions. Moreover, the low leverage in banking stocks may provide support on downsides.

Hence, short-term positive bias should remain intact above 39,500 level, which has seen significant Put additions recently The Bank Nifty-Nifty price ratio has finally started moving on the back of outperformance of banking space, towards 2.22 level from 2.14 in a week. Derivatives analysts believe this trend may continue and the price ratio may move towards 2.26 in the short term.