Aggressive options writing amid lack of fresh triggers

As per the latest options data on NSE, the support level declined by 800 points to 17,000PE and resistance level eased marginally by 150 points to 17,700CE. The 17,700 strike has highest Call OI followed by 18,500/ 17,800/17,900/ 18,100/ 18,300 strikes, while 17,700/17,650/ 17,600/ 17,900/ 18,100/17,950 strikes recorded reasonable addition of Call OI.

Coming to the Put side, the maximum Put OI is seen at 17,000PE followed by 17,700/ 17,400/ 17,600/17,200/16,800 strikes. Further, 17,600/ 17,550/ 17,300 /17,500/ 17,000/17,100 strikes recorded modest build-up of Put OI.

Nifty futures OI remained low. Nifty began the settlement week with near 9.3 million shares, which is significantly low suggesting no major directional bias prevailing in the market.

Dhirender Singh Bisht, associate vice-president (technical research-equity) at SMC Global Securities Ltd, said: “From the derivatives front, options writers remained active at both Calls and Puts strikes in the absence of any fresh triggers.”

“Indian markets took a pause last week, after witnessing three weeks of consecutive gains and traders were seen booking profits at higher levels. The lackluster trend continued to prevail as investors stayed cautious due to concerns over further rate hikes in the US and European nations and ensuing global economic slowdown. Investors are also concerned that any further disappointment in corporate earnings from blue chip companies could worsen the sentiment going ahead,” added Bisht.

BSE Sensex closed the week ended April 21, 2023, at 59,655.06 points, a net decline of 775.94 points or 1.28 per cent, from the previous week’s (April 13) closing of 60,431 points. NSE Nifty ended the week at 17,624.05 points, a marginal fall of 203.95 points or 1.14 per cent, from 17,828 points a week ago.

Bisht forecasts: “Technically, both the indices can be seen holding well above its all-important moving averages as bias may remain in favor of bulls. In upcoming sessions, we expect markets to trade in a sideways range with Nifty having a strong support zone in the range of 17,500-17,400 points, while on the higher side, the 17,800-17,900 zone is likely to protect any sharp upside in prices.”

According to data from ICICIdirect.com, the Volume-Weighted Average Price (VWAP) of the April F&O series is at 17,650 strike along with aggressive Call writing at 17,700 Call strike making these levels major hurdles. On the other hand, the Put base at 17,700 strike is also strengthening suggesting limited declines.

From a monthly expiry perspective, only a sustained move above these levels may trigger a fresh upwards move.

India VIX fell 2.60 per cent to 11.63 level. The volatility index India VIX remained low below 12 level throughout the week along with US VIX, which has moved to its 52-week low below 18 level. Hence, an uptick in volatility can’t be ruled out, which may result in marginal profit booking in coming sessions. Thus, only a move above 17,700 should be considered for fresh longs.

“The Implied Volatility (IV) of Calls closed at 11.11 per cent, while that for Put options closed at 12.57 per cent. The Nifty VIX for the week closed at 11.94 per cent. PCR of OI for the week closed at 0.88 lower than the previous week indicates more Call writing than Puts,” remarked Bisht.

FIIs in F&O space remained muted after sharp covering was seen in the first half of the month. FIIs sold index futures marginally along with stock futures. FIIs sold Rs500-crore worth index futures and Rs800-crore worth stock futures. Due to continued range bound movement, even in the index options FIIs remained net sellers and sold nearly Rs2,000 crore during the last week.

Bank Nifty

NSE’s banking index closed the week at 42,118 points, a miniscule loss of 14.55 points or 0.03 per cent from the previous week’s closing of 42,132.55 points.

Bank Nifty witnessed short covering ahead of the results season. The banking index gained in the first half of the current series. However, ahead of settlement week, Bank Nifty is witnessing aggressive Call writing at ATM and OTM strikes. Call OI concentration is much higher than Put strikes suggesting expectations of limited upsides.