Heavy Call OI, easing volatility point to undercurrent positive bias

A gamut of factors including declining volatility and FII selling, OI build-up on Call side, etc., is indicating a positive bias in the market. As per the latest data on NSENSE, the resistance level moved up by 500 points to 17,500CE and the support level rose marginally by 300 points to 16,300PE. The 17,500CE has the highest Call base followed by 17,000/ 16,800/17,200/17,400/17,300 strikes. Moderate to heavy build-up of Call OI is seen at 16,800/16,900/17,000/17,200/17,400 /17,500 strikes.

Coming to the Put side, 16,300strike witnessed maximum Put OI followed by 16,500/16,400/ 16,000/15,700/15,500 strikes, while 15,800/16,300/16,500/ 16,700/16,000 strikes recorded reasonable addition of Put OI. NSE Nifty finally moved out of the three-week range of 15800-16400 as volatility declining. Hence, 16400 level may be retested in the short-term and declines remain a buying opportunity.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Options data suggest that Nifty is likely to remain under pressure in upcoming week as far it is trading below 16800 level as Call writers are holding nearly 45 lakh shares of Open Interest at 16800 CE. On the downside, 16500 level is likely to provide immediate support to the Nifty."

The data from ICICIdirect.com indicates that Nifty futures Open Interest declined towards one crore shares from 1.1 crore shares seen at the inception of the June series amid ongoing short covering. However, FIIs once again started reducing their longs and increased net short positions marginally. Meanwhile highest Call option concentration is at 17000 strike, which may act as an immediate hurdle.

"Indian markets remained highly volatile in the week gone by as NSE Nifty ended the week with gains of nearly 1.40 per cent, while Banking index pared all of its gains in Friday's session to close the week with loss of nearly one per cent. The benchmark index was pulled down by banking, cement, auto and metal counters as traders looked keen to book profit during the weekend session," added Bisht.

For the week ended June 3, 2022, BSE Sensex closed at 55,769.23 points, a further recovery of 884.57 points or 1.61 per cent, from the previous week's closing of 54,884.66points. Registering a gain of 231.85 points or 1.41 per cent, NSE Nifty ended the week at 16,584.30 points from 16,352.45points a week ago.

Bisht forecasts: "Technical charts suggest that the index is likely to remain volatile in upcoming week as well and may consolidate in a broader range. However, bias is likely to remain in favour of bulls with stock-specific action needs to be on radar."

Volatility index India VIX eased 1.70 per cent to 19.98 level. From a volatility perspective, both US and India VIX moved near their monthly lows suggesting building up for positive sentiments. Hence, major declines seem unlikely and risk on sentiments should take the markets higher. In such a scenario, heavily beaten down stocks from metal and technology are likely to do well.

"Implied Volatility of Calls closed at 18.38 per cent, while that for Put options closed at 19.79 per cent. The Nifty VIX for the week closed at 20.32 per cent. PCR of OI for the week closed at 1.36," observes Bisht.

In the F&O space, the net short Open Interest from FIIs reduced drastically in the last 15 days and FIIs turned net longs towards the end of May from almost 1.25 lakh contracts net shorts. Also, in stock futures, net longs have been continuously increasing suggesting ongoing stock-specific accumulation as FIIs bought over Rs6,000 crore in stock futures, as per the data from ICICIdirect.com. Also, reduction in FII selling bodes well for fresh upsides.

Bank Nifty

NSE's banking index closed the week at 35,275.05 points, a recovery of 1,336.90 points or 3.90 per cent, from the previous week's closing of 35,613.30 points. The options segment last week recorded huge writing blocks at 36000 strike Call and as the index reverted further lower. The quantum of OI in this Call writing position increased. As of now the highest Put base for the week is at 35000 strike. However, the quantum is almost half compared to Calls and a close below this level would be a negative indicator, according to ICICIdirect.com.