Options data points to uncertainty

The resistance and support levels, as per the options data on NSE, remained unchanged for a second week at 16,800CE and 16,400PE respectively. The F&O August series has been recording a continued writing among Put strikes. Despite sharp declines seen on Friday, Put option Open Interest (OI) remained almost intact across strikes with the highest Put base at 16,400 strike.

The 16,800 strike has the highest Call OI base followed by 17,000/16,500/ 16,600/ 16,900 strikes. Further, 16,800/17,000/ 16,600 strikes witnessed reasonable build-up of Call OI.

Coming to Put side, the 16,400 strike recorded maximum Put OI followed by 16,300/ 16,500/ 16,000/16,200 strikes. Significant addition of Put OI was seen at 16,400/ 16,500/ 15,800/ 16,300 strikes.

The 16,500 strike has maximum Call OI followed by 16,700/ 17,000/ 16,400 strikes. Further, 16,500/17,100/16,400 /16,800/ witnessed reasonable addition of Call OI. Coming to the Put side, the 15,500PE has the highest Put OI followed by 16,000/ 16,400/16,500/15,800 strikes. Moderate build-up of Put OI was seen at 15,500/ 16,400/ 15,400 strikes.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Put writers were seen unwinding their positions at 16,500 strike, while Call writers added hefty Open Interest at the same level."

Any change in the bias for the expiry week should be considered only if the Nifty moves below 16,400 level on a closing basis, according to ICICI Direct.com. The Open Interest in Nifty moved to its highest levels since March 2020. In the current weakness, it has declined marginally due to long liquidation. However, net longs from FIIs remained intact and closure of positions from FIIs may bring further pressure on the index, added ICICI Direct.com.

"Indian markets remained volatile in the week gone by on the back of mixed cues from the global front. Continued weakness in global markets kept bears on front foot even though Nifty tested its record highs last week."

For the week ended August 20, 2021, BSE Sensex closed at 55,329.32 points, a net loss of 107.97 points or 0.19 per cent, from the previous week's closing of 55,437.29 points. Registering an encouraging gain of 78.60 points or 0.47 per cent, NSE Nifty ended the week at 16,450.50 points from 16,529.10 points a week ago.

Bisht forecasts: "Technically, we are observing some negative divergences on secondary oscillators on both the indices, which point towards limited upside in the index for upcoming week. On the downside, 16400 & 16250 levels will act as immediate support for Nifty, while any sharp upside would likely remain capped under the 16600-16650 zone." The volatility index once again did not go much above 14 per cent.

In the last two months, despite many attempts, India VIX remained below this level. While weakness was observed in the broader markets earlier also, the Nifty has shown significant resilience.

Volatility index India VIX gained 8.60 per cent to 14.02 level. "However, volatility is likely to remain intact in markets with some sector specific action," observes Bisht.

If India VIX sustains above 14 level, it may trigger some weakness in the NSE Nifty in the coming sessions.

"The Implied Volatility of Calls closed at 11.01 per cent, while that for Put options closed at 12.03 per cent. The Nifty VIX for the week closed at 12.91 per cent. PCR of OI for the week closed at 1.34," remarked Bisht.

In the F&O space, FII remained concentrated in the stock futures and index options space. With the Nifty trading near life-time highs, FII activity picked up Rs4,283-crore stock futures sharply, while they were net sellers in index futures worth Rs202 crore. At the same time, FIIs bought index options worth Rs6,557 crore during the week.

Bank Nifty

NSE's banking index closed the week at 35,033.85 points, a fall of 1,135.50 points or 3.13 per cent, from the previous week's closing of 36,169.35 points. "Banking index once again could not manage to sustain above 36,000 level and slid down sharply to end the week with a loss of nearly three per cent," added Bisht. The Bank Nifty attracted huge Call writing in 35,500 strike followed by 36,000 points.

Even if the index finds support near 35,000 and gets a pullback, any visible gains can't be expected to sustain in the expiry week. Major hurdle for the index continues to remain at 36,000 level. The price ratio of Bank Nifty-Nifty broke its support of 2.18 and moved well below this level.

This is likely to keep banking stocks under pressure. Sectoral rotation should attract buying in other Nifty stocks as outflows are expected in banking stocks.

The Dollar index rose to a nine-month high in the forex market. Bank Nifty extended its downward journey towards its sizeable Put base of 35,000 on Friday. A close below it, should trigger further downsides for Bank Nifty.