OI build-up at far strikes points to volatile trading

The scattered form of Open Interest (OI) concentration is reflecting a wide range of trading for the week ahead (March 7-11, 2022) amid a volatility index hovering above 27 level. According to the latest options data on NSE, the resistance level remained at 17,500CE, while support level declined by 1,000 points to 15,000PE. The Assembly election results are scheduled for March 10 (Thursday), which is a weekly expiry for derivatives contracts. It may further result in a highly volatile session.

Highest Call OI base is seen at 17,500CE followed by 18,000/ 17,200/17,300/ 16,700/16,800 strikes. Further, significant addition of Call OI is at 17,500/17,000/ 17,200/ 16,700/ 17,300 strikes.

Coming to the Put side, the 15,000PE recorded maximum Put OI base followed by 14,800/ 15,500/ 15,700/16,000/16,300 strikes. 14,750/ 15,00/10874/ 15,500/16,300 strikes witnessed moderate build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, option writers were seen adding Open Interest in far strikes, which points towards more volatility in upcoming sessions."

Out of The Money (OTM) Call writers during the past few weeks have been dominating with no noticeable closure in writing positions. Major Call writing positions are placed at 16,500 strike for the week ahead and it should act as a hurdle for the index. However, a close above this level would be looked upon for any short covering. Derivatives analysts see a positive bias above 16,500 level amid high volatility and continued FIIs' selling pressure.

Buying support witnessed in metals, technology, power and select oil & gas stocks. As coal prices rose in the international market, cement stocks were the biggest losers whereas auto numbers failed to attract traders due to which selling intensified in the auto space. "For the fourth consecutive week, Indian markets ended in negative territory as Nifty slipped below 16,300 mark on the back of Russia -Ukraine conflict. Sell-off was seen across the sectors as Nifty ended the week with a cut off more than two per cent," added Bisht.

For the week ended March 4, 2022, BSE Sensex closed at 54,333.81 points, a heavy loss of 1,524.71 points or 2.72 per cent, from the previous week's closing of 55,858.52 points. Registering a drop of 413.05 points or 2.47 per cent, NSE Nifty ended the week at 16,245.35 points from 16,658.40 points a week ago. Bisht forecasts: "From technical front, Nifty has slipped back below its 50-day Exponential Moving Average on daily charts, which are placed at 16,585 level. For Nifty, 16000 level would act as a key psychological support below which index can fall further towards 15,800 zone."

Despite a marginal decline of 0.70 per cent, India VIX is still hovering at 27.96 level, which indicates high volatility in the market.

"Implied Volatility of Calls closed at 26.68 per cent, while that for Put options closed at 27.52. The Nifty VIX for the week closed at 28.16 per cent, which was higher than the previous week. PCR of OI for the week closed at 1.62," observed Bisht.

Even in the F&O space, FII activities remained high in a volatile environment. While they have turned net buyers in stock futures, they remained sellers in index futures. FIIs bought index options worth Rs11,149crore. At the same time, they bought to the tune of Rs4,787crore in stock futures and sold Rs1,133 crores in index futures, as per the data from ICICIdirect.com.

Bank Nifty

NSE's banking index closed the week at 34,407.80 points, a decline of 2,022.95 points or 5.55 per cent, from the previous week's closing of 36,430.75 points. "Bank Nifty witnessed even worse as the index ended the week with a cut off more than five per cent. Bank Nifty has also formed a Rounding Top pattern and is likely to remain under pressure, with immediate support placed at 34,000 level, below which further selling pressure can be seen in prices," remarked Bisht.

The Bank Nifty closed to its December 2021 low. However, considering high volatility, analysts recommend going long only above 35000 for a target of 37000, according to ICICIdirect.com.

Bank Nifty started the March series with marginally higher OI due to some short positions being carried forward for the March series. As the series progressed, further addition of short positions in futures was seen. Even on the options front, private banks are witnessing Call writing. Once closure starts in these positions, short covering can trigger a move of 2,000 points.