Hefty OI build-up holds bullish undertone

Significant Open Interest (OI) build-up on both the Call and Put strikes is pointing to brisk activity for the week ahead (January 10-14, 2022) with bullish bias. The resistance level remained at 18,000CE for the sixth consecutive week, while support level rose by 200 points to 17,500PE. Highest Call OI is at 18,000 strike followed by 18,500/ 17,900/ 17,800/ 18,400/ 19,000/ 18,300 strikes. Further, 18,000/17,800/17,900 /18,200/ 18,500/19,000 strikes recorded significant addition of Call OI.

Highest Put OI is seen at 17,500 followed by 16,800/17,000/ 17,600/17,800 strikes. The 17,500 strike witnessed huge build-up of Put OI, while 17,800/17,600/17,200 strikes added considerable Put OI addition.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "A selling pressure was witnessed around the physiological level of 18,000 level, where Call writers were active whereas on downside 17500 Put writers were active with maximum Open Interest."

According to ICICIdirect.com, while the Nifty almost tested 18,000 last week, for the coming weekly settlement may remain crucial resistance as significant Call writing is visible at this strike. On the downside, the highest Put base is currently placed at 17500 strike, which should act as important support. Hence, consolidation is likely to be seen in the index ahead of results season with support near 17500.

"On weekly basis, Nifty gained more than two per cent and closed in positive territory despite a rise in Omicron variant cases. Last week the market was volatile with gap-up and gap-down opening whereas the undertone was bullish," adds Bisht.

The first week of 2022 for NSE Nifty began on a strong note as banking stocks supported the index. Though the market witnessed profit booking towards the end of the week, the Nifty gained 2.5 per cent last week. Markets lost some of the momentum after the release of FMOC meeting minutes where tighter monetary conditions were expected in the second half of the year. However, broader markets continued to outperform as both the midcap and small cap space gained nearly two per cent each. For the week ended January 7, 2022, BSE Sensex closed at 59,744.65 points, a net gain of 1,490.83 points or 2.55 per cent, from the previous week's closing of 58,253.82 points. Registering a rise of 458.65 points or 2.64 per cent, NSE Nifty ended the week at 17,812.70 points from 17,354.05 points a week ago.

Bisht forecasts:"Technically, Nifty is facing hurdle around 18,200 level, whereas the support is placed around 17,500 points followed by 17,000 points. Bank Nifty may trade in the range of 38500 and 36500 levels with volatile movement. For the upcoming week, we expect markets to trade volatile with a bullish undertone. One can adopt a buy on dips method for short-term trading." The OI in Nifty remained subdued near 1.1 crore shares despite recent up move and action

was primarily limited to the banking space. While FIIs have seen buying in the secondary markets recently, considering overall activity gross figures are still low. We expect to find some clues from next week onwards, as per the data from ICICIdirect.com.

India VIX declined 2.09 per cent to 17.60 level. On the volatility front, India VIX has not subsided below 16 levels despite the move and finally closed the week near 17.5. With technology heavyweights results next week, we expect volatility to remain higher. We believe positive bias should be maintained till it is below 18 level.

"Implied volatility of Calls closed at 16.18 per cent, while that for Put options closed at 17.02. The Nifty VIX for the week closed at 17.98 per cent. PCR of OI for the week closed at 1.60," added Bisht.

Bank Nifty

NSE's banking index closed the week at 37,739.60 points, a marginal recovery of 2,257.90 points or 6.36 per cent, from the previous week's closing of 35,481.70 points. "In Bank Nifty, support is placed around 37,000 with highest Open Interest whereas on upside the resistance is around 38,000 with highest Open Interest in Calls," observed Bisht. Most Put writing positions are moving higher along with up moves in the index. Now the major Call OI concentration is at 38000 strike, which remains the key level to watch on upsides. Once the index manages to close above this level, further upsides are expected.

From a short term perspective, the Bank Nifty should find support near 37500 levels. However, looking at the quantum of Put OI, if the index violates 37500 levels, downsides would be limited and dips should be utilised to create fresh long positions, says ICICIdirect.com.