Call writing at ATM/ OTM strikes signals selling pressure

Volatility index might play a significant role in the upcoming sessions as a decrease in the India VIX could signal increased buying interest, said Dhirender Singh Bisht, associate vice-president (technical research) at SMC Global Securities Ltd

The 23,000CE holds highest Call OI followed by 22,500/ 22,700/ 22,600/ 22,400/ 22,800/ 22,500/ 24,000 strikes, while 23,000/ 22,800/ 22,500/ 23,500/ 22,600/ 22,650 strikes recorded reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is observed at 22,000PE followed by 22,100/ 21,800/ 22,200/ 21,700/21,300/21,500 strikes, Further, 21,900/ 21,800/ 21,500/21,300/21,200 strikes recorded moderate build-up of Put OI.

Dhirender Singh Bisht, associate vice-president (technical research) at SMC Global Securities Ltd, said: “From the derivatives front, in Nifty options, the highest Call Open Interest was observed at the 22,500 strike, while the highest Put Open Interest was at the 22,000 strike.”

Significant Call writing occurred at ATM and OTM strikes indicating potential selling pressure at higher levels. Higher Put base is seen at ATM 22,000 strike for this week. Considering Nifty was able to defend 22,000 level on numerous occasions. Hence, move below this level may extend the weakness in the coming week. Nifty made monthly lows last week, retesting of these lows may trigger a covering move from the Put option writers.

“Last week, both Nifty and Bank Nifty closed nearly unchanged, registering marginal gains. Notable profit-taking was seen in the IT and mid-cap sectors. On the flip side, sectors like Realty and Auto remained among the outperformers over the week,” added Bisht.

BSE Sensex closed the week ended March 22, 2024, at 72,831.94 points, a fall of 188.51 points or 0.25 per cent, from the previous week’s (March 15) closing of 72,643.43 points. For the week, NSE Nifty also declined by 73.40 points or 0.33 per cent to 22,096.75 points from 22,023.35 points a week ago.

Bisht forecasts: “In the week ahead, Nifty is expected to fluctuate between 21,800 and 22,300 zone, with a potential breakout determining market momentum. It’s advisable for traders to closely watch these levels.”

India VIX fell 2.34 per cent to 12.22 level. “Implied Volatility for Nifty’s Call options settled at 11.90 per cent, and Put options concluded at 12.57 per cent. The India VIX, a crucial market volatility indicator, ended the week at 12.51 per cent. The Put-Call Ratio Open Interest (PCR OI) stood at 1.12 for the week,” remarked Bisht.

Volatility index closed the week almost flat despite higher intraday volatility and sharp fall in the last week.

“Furthermore, the volatility index -India VIX- might play a significant role in the upcoming sessions; as a decrease in the India VIX could signal increased buying interest,” observes Bisht.

Even in futures, Nifty leverage remains higher. Apart from retail investors, other market participants took net shorts in the index. Also, considering significantly higher premium in Nifty, upsides may remain restricted this truncated week. Hence, a move above 22,200 is crucial for the fresh uptrend.

Bank Nifty

NSE’s banking index closed the week at 46,863.75 points, lower by 269.65 points or 0.57 per cent from the previous week’s closing of 46,594.10 points. “For Bank Nifty, the highest Call Open Interest was at the 47,000 strike, with the highest Put Open Interest at the 46,500 strike,” said Bisht.