Options data points to directionless trading

Reflecting possible sideways trading, the resistance remained at the same level at 18,000CE for the fourth consecutive week, while support level declined by 500 points to 16,500PE. Put writers covering short positions, while Call writers building up Open Interest (OI). The highest Call OI is at 18,000 strike followed by 17,500/ 17,200/17,000/17,100/17,900 strikes. Further, 17,00/ 18,000/ 17,500/17,200/ 17,100/17,300 strikes witnessed significant build-up of Call OI.

Coming to Put side, the 16,500PE recorded maximum Put base followed by 17,000/ 16,000/16,700/16,300/16,200 strikes, while 16,700/16,500/ 16,950/16,300/ 16,100 strikes have reasonable addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Derivatives data suggests lack of clear direction as Call writers were seen adding Open Interest at 17,200 strike, while Put writers held maximum Open Interest at 17,000 strike."

Broad-based index Nifty closed the week flat near 17000 as it recovered after sharp decline below 16,500 seen last Monday as unabated FII selling pressure continued. However, selling pressure subsided significantly towards the weekend. On a weekly basis, while technology and FMCG space witnessed some buying, banking remained the major laggard and kept upsides in check. Broader markets performed a tad better as midcaps and small cap indices closed almost flat.

"Indian markets could not manage to close in positive territory and ended the week in red, amid concerns over rising Omicron variant cases. But Nifty managed to close above the 17000 mark after a quite volatile week," added Bisht.

For the week ended December 17, 2021, BSE Sensex closed at 57,124.31 points, a net gain of 112.57 points or 0.19 per cent, from the previous week's closing of 57,011.74 points. Registering a rise of 18.55 points or 0.10 per cent, NSE Nifty ended the week at 17,003.75 points from 16,985.20 points a week ago.

Bisht forecasts: "Technically, Nifty is facing a strong hurdle at its 100-day exponential moving average on daily charts, which placed around 17,150 level, while the 200-day exponential moving average would act as a strong resistance for the banking index, which is placed around 35400 level. For the upcoming week we expect markets to trade in a sideways direction in the absence of any trigger from global markets on the back of Christmas and New Year. However, domestic players are expected to keep a strong vigil on any updates regarding Omicron cases."

"Implied Volatility of Calls closed at 14.52 per cent, while that for Put options, it closed at 15.11. The Nifty VIX for the week closed at 15.83 per cent. PCR of OI for the week closed at 1.00," remarked Bisht.

The VWAP of December series is placed near 17,175 strike. Thus a move above 17,200 should trigger short covering in the markets. On the downside, the 16700 may be retested if the Nifty remains below 17000 levels, according to ICICIdirect.com. Considering the upcoming monthly settlement, the volatility will remain on the higher side. More importantly year ending index rebalancing may bring some sharp action towards settlement. Apart from this, one needs to keep a close watch if FIIs activity emerges after a dull period of almost a week.

India VIX rose 2.04 per cent to 16.15 level, however, less than the 20.13 mark recorded on last Monday (December 20). After testing almost 20 level on Monday, the volatility index continued to subside and closed the week near 16 level. Even US VIX has declined considerably from 27 to 17 during the week. Markets should not witness any major declines and levels of 16700 should remain important support in the coming week.

As per data from ICICIdirect.com, FII activity in the F&O space was on stocks and fresh longs were formed, while shorts were also covered in the stock futures segment. FIIs bought index options worth Rs7,694crore, Rs6,808 crore in stock futures and also bought index futures worth Rs1,614 crore.

Bank Nifty

NSE's banking index closed the week at 34,857.05 points, a marginal recovery of 760.60 points or 2.13 per cent, from the previous week's closing of 35,618.65 points.

FIIs slowed down their selling spree substantially in the Christmas week along with which IVs further cooled off, which helped in broader recovery. However, Bank Nifty, in particular, is attracting Call writing as there is a decline in Put to Call ratio on a weekly basis as huge Call OI blocks are placed in 35500 and 36000 strike Calls.

Major hurdles for the Bank Nifty are at 36000 levels. Any meaningful recovery is expected only above 36000. There would be stock specific activity in the expiry week due to pick-up in rollover activity, according to ICICIdirect.com.