Markets moving to lower bands

The latest options data on NSE points to a downward trend in the market as support level declined by 1,000 points to 16,500CE and support level down by 1,300 points to 15,000PE. The widening gap between strikes, where the highest Call base and Put base are seen also indicate rising volatility.

The 16,500 strike has the highest Call base followed by 16,300/16,400/ 16,300/ 17,100/16,800/16,600 strikes. Further, 16,300/ 16,400/ 16,800/ 17,000 /17,100/ 16,200 strikes witnessed significant build-up of Call OI.

Coming to the Put side, 15,000PE has maximum Put OI followed by 15,400/15,800/ 15,900/15,300 /14,800/16,000/15,700 strikes, while 15,600/15,900/ 16,000/ 15,800/ 15,400/ 15,200/15,700 strikes recorded heavy to moderate addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers were seen adding hefty Open Interest at 16300, 16400 & 16500 strikes, while Put writers remained on back foot and added marginal Open Interest at 16200 & 16000 strike."

According to ICICIdirect.com, Nifty futures Open Interest rose sharply to 1.27 crore shares from one crore shares as FIIs increased their net shorts once again. Hence, sustainability above 16200 is crucial for any short covering expectation. The highest Put base for the week is placed at 16200 strike. A move below it may keep the index under pressure. On the higher side, Call writing at 16500 strike should keep upsides limited.

"In the week gone by, Indian markets remained under pressure and closed the week in red territory on the back of weak macro and micro factors. Nifty shed more than two per cent, while Banking Nifty also closed below 35,000 level with a loss of more than two per cent week-on-week basis," added Bisht.

For the week ended June 10, 2022, BSE Sensex closed at 54,303.44oints, a net drop of 1,465.79 points or 2.62 per cent, from the previous week's closing of 55,769.23 points. Registering a decline of 382.50 points or 2.30 per cent, NSE Nifty ended the week at 16,201.80 points from 16,584.30 points a week ago.

Bisht forecasts: "From the technical front, the 16000-15800 zone would act as strong support for Nifty, while 16500-16600 zone is likely to cap any sharp upside in the index. For the upcoming session, we believe that markets are likely to trade on a volatile path with bias likely to remain in favour of bears. However, traders can expect sector-specific and stock-specific moves in the coming week."

Volatility index, India VIX, rose 2.27 per cent to 19.58 level. Volatility index remained low below 20 level despite sharp sell-off seen on Friday. Even US VIX has not increased much despite losing more than two per cent till Friday. Nifty should consolidate above 16200 in the coming week, observe derivatives analysts.

"Implied Volatility of Calls closed at 17.50 per cent, while that for Put options closed at 18.39 per cent. The Nifty VIX for the week closed at 19.14 per cent. PCR of OI for the week closed at 1.36," remarked Bisht.

Sectorally, mid-cap stocks recorded high short positions from the chemical and fertiliser space. Weakness in this space may continue in coming sessions. On the other hand, technology and metal stocks may witness some covering.

As per the data from ICICIdirect.com,

Even on the F&O front, the net short Open Interest from FIIs increased sharply last week and FIIs net short positions increased to almost 90,000 contracts last week as they sold more than Rs4,000 crore last week. On the other hand, they have been accumulating at lower levels and their net longs have been continuously increasing as FIIs have bought over Rs4,800 crore in stock futures.

Bank Nifty

NSE's banking index closed the week at 34,483.80 points, a loss 791.25 points or 2.24 per cent, from the previous week's closing of 35,275.05 points. Despite a sharp increase of 50 bps Repo rate hike by RBI, Bank Nifty OI remained almost flat last week. Friday session recorded a steep rise in open interest suggesting formation of short positions. The private banking stocks are witnessing continued Call writing. Hence, closure of positions is crucial for a meaningful recovery.

Despite the sharp sell-off seen on Friday, Put option OI remained intact in 34500 and 34000 strike while incremental heavy Call writing was seen at 35000 Call strike. The quantum of OI in this Call writing position is significantly higher than the Puts amid low IVs suggesting expectations of limited upsides. Hence, a move above 35000 is crucial for a sustainable recovery, according to ICICIdirect.com