Options data points to higher bands

Indicating upward movement of Open Interest (OI) to deep OTM strikes, the latest options data on NSE points to upward movement of resistance level by 400 points to 17,000CE and support level rose by 500 points to 16,500PE. The 17,000 strike has the highest Call OI followed by 16,700/17,500/17,300/ 17,100 /16,900 strikes, while 17,200/17,100/ 17,000/16,700/ 17,500 strikes witnessed reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 16,500 followed by 16,000/16,600/16,00/ 16,300/16,100/ 15,900/ 15,700 strikes. And 16,600/ 16,700/ 16,500/ 16,000/ 15,800 strikes recorded significant build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Put writers held maximum Open Interest at 16,500 strike, while Call writers were seen shifting to 16,800 & 17,000 strikes with marginal Open Interest addition."

After a very long time, FIIs turned into buying mode. This along with strong results, kept the momentum strong for domestic stock markets during the week. Domestic equities continued its northbound journey on the back of positive global cues and better than expected Q1 earnings.

"Indian markets ended higher for the sixth day in a row with Nifty closing above 16,700 mark and Bank Nifty above 36,700 level. Banking counters along with cement stocks showed some good upside momentum, while IT and metal remained laggard," added Bisht.

For the week ended July 22, 2022, BSE Sensex closed at 56,072.23 points, a hefty recovery of 2,311.45 points or 4.29 per cent, from the previous week's closing of 53,760.78 points. Registering a rebound of 417.62 points or 4.17 per cent, NSE Nifty ended the week at 16,719.45 points from 16,049.20 points a week ago.

Bisht forecasts: "Technically Nifty has given a fresh breakout above its 200-Day exponential moving average on daily charts, which is placed at 16,500 level and is now likely to face immediate hurdle at 16,800 & 17,000 levels. We keep our bullish stance intact for this week as well and advise traders to follow buy on dips strategy in case of any pullback. Nifty has strong support at 16500-16400 zone."

FIIs' net short positions rose once again above one lakh contracts. Majority of these positions were formed after US inflation numbers. Hence, these positions are susceptible to short covering. The Nifty may witness a further recovery ahead of crucial events lined up in the second half of the month, according to ICICIdirect.com.

India VIX index eased by 1.23 per cent to 16.65 level. The volatility index closed the week at its lowest level seen since January below 17 level. Moreover, despite recent weakness seen in the banking and technology space, the Nifty was largely able to hold its levels. While stock-specific volatility is likely to remain high amid the result season, broader weakness is unlikely till VIX does not move above 20 level.

"Implied Volatility (IV) of Calls closed at 15.96 per cent, while that for Put options, it closed at 16.87 per cent. The Nifty VIX for the week closed at 16.86 per cent. PCR of OI for the week closed at 0.84 level," remarked Bisht.

The volatility index remained subdued for a second week in a row whereas short position by FIIs in index future segment rose marginally. Now, net shorts by FIIs moved marginally above one lakh contracts. Closure in these positions should trigger meaningful upsides.

Bank Nifty

NSE's banking index closed the week at 36,738.95 points, a decline of 2,056.30 points or 5.92 per cent, from the previous week's closing of 34,682.65points. "Bank Nifty, which has outperformed the overall market in the week gone by, is now likely to carry its momentum towards 37,200 level in the upcoming sessions," observes Bisht.

Last week, few Call option strikes of the Bank Nifty saw formation of aggressive writing positions. This pushed the index towards its support levels of 34500 and latest Bank Nifty recovered to 36,738 level on Friday closing. Recently the rupee made a new lifetime low against the dollar due to which there would be some negative sentiments on the Street.