FIIs building naked shorts on Index Futures

After six weeks of standing at 17,000PE, the support level declined by 1,000 points to 16,000PE, while resistance level eased by 1,000 points to 18,000CE. Derivatives space recorded a sharp shorting on Call side at 18,000 level and it's indicating more downside movement in coming week with support at 16,500 from Options side, observe derivatives analysts. Though net short positions by FIIs declined on a weekly basis, net shorts started increasing with the recent sell-off.

The 18,000CE has highest Call OI followed by 19,000/18,500/17,800/18,200/ 18,300/17,900/ 18,700 strikes, while 18,000/ 18,100/ 18,300/ 18,500,17,650/17,700 strikes witnessed significant build-up of Call OI.

Coming to the Put side, maximum Put OI is seen at 16,000 followed by 16,500/16,800 /16,900/16,200/16,200 strikes. Further, 16,800/16,700/16,600/ 16,200/ 16,000 strikes recorded moderate addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers remained active at 17500-17600 & 17700 strikes, whereas Put writing was observed at 17000 strike."

Kush Ghodasara, CMT, an independent market expert, says: "Last two days, we have seen FIIs building naked shorts on Index Futures of worth Rs4,500 crore, while on Options side, we witnessed short covering on Put strikes of 17,500 and 17,000, while sharp shorting was seen on Call side at 18,000 level. While fresh Open Interest was seen at 17000-16500 strikes for October month. We could see more downside in the coming week with support at 16,500 from Options side."

According to the data from ICICIdirect.com, the Call options Open Interest in Nifty is significantly higher compared to the Put bases and highest Put base of 40 lakh shares is at 17500 strike, while 17800 Calls and higher strikes holds 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 resumption of the uptrend.

"As US interest rates hit 14-year high in inflation, the global market observed another melt down in the week gone by. Nifty and Bank Nifty closed in red week on week basis, where more selling was seen in Bank Nifty as compared to Nifty. Bank Nifty slipped and closed below 40,000 psychological level," added Bisht.

For the week ended September 23, 2022, BSE Sensex closed at 58,098.9 points, a net loss of 741.89 points or 1.26 per cent, from the previous week's closing of 58,840.79 points. Registering a fall of 203.50 points or 1.16 per cent, NSE Nifty ended the week at 17,327.35 points from 17,530.85 points a week ago.

Bisht forecasts: "For upcoming week, we expect markets to remain under pressure once again and volatile. On the downside, 17200-17000 zone would act as support for Nifty, while the 17500-17600 zone is likely to cap upside in prices. We advise traders to focus on stock specific-action and avoid making any fresh position unless there is any positive data build up in the market."

Volatility index India VIX closed higher by 9.45 per cent at 20.59 level. Volatility index rose above 20 level once again after the US Fed hiked interest rate. The 17500 should be an important support level, below which the weakness may extend towards 17200 once again.

"Implied Volatility (IV) of Calls closed at 17.57 per cent, while that for Put options, it closed at 18.97 per cent. The Nifty VIX for the week closed at 18.82 per cent. PCR of OI for the week closed at 0.92," remarked Bisht.

Bank Nifty

NSE's banking index closed the week at 39,546.25 points, a further gain of 1,230.55 points or 3.01 per cent, from the previous week's closing of 40,776.80 points. "In Bank Nifty, Call writers are active at 40000 Call strike, whereas Put writers added marginal positions in 39500 and 39000 strikes," said Bisht.