Options data points to undertone positive bias

Considering the truncated week ahead (holiday on Thursday & Friday, April 14-15), derivatives analysts predict that NSE Nifty should consolidate with positive bias, while stock- specific movement is likely to be seen amid quarterly results. Call and Put writers are active as several OTM (Out of the Money) strikes on both sides recorded significant Open Interest (OI) build-up.

Highest Call OI is seen at 18,500 strike followed by 18,000/19,000/ 18,700/ 18,600/ 18,400/17,800 strikes. Heavy build-up of Call OI is at 18,500/ 18,400/18,200/18,000 strikes.

Coming to the Put side, the 17,500 strike recorded maximum Put OI followed by 17,800/17,700/17,500/17,200 strikes. Other strikes 17,600/17,700/17,500/17,000/ 16,800/ 17,000 strikes witnessed significant addition of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "Nifty was seen trading in a broader range of 18100 to 17600. From the derivatives front, Call writers remained active at 17800 & 18000 strikes, while Put writers were seen adding Open Interest at 17700, 17600 & 17500 strikes."

Significant Call writing is seen at ATM and OTM strikes with the highest Call base at 18,000 strike. On the other hand, due to the sharp up move seen on Friday, significant additions were also seen at ATM Put strikes.

"Indian markets remained highly volatile in the week gone by, on the back of mixed cues from the domestic and global front," adds Bisht.

For the week ended April 8, 2022, BSE Sensex closed at 59,447.18 points, a modest recovery of 170.49 points or 0.28 per cent, from the previous week's closing of 59,276.69 points. Registering a minute edge-up of 113.90 points or 0.64 per cent, NSE Nifty ended the week at 17,784.35 points from 17,670.45 points a week ago.

Bisht forecasts: "For upcoming week, we expect markets to remain volatile once again and could witness sideways moves at higher levels. As far as the Nifty is concerned, 17850-17950 zone will act as a resistance for the index, while the 17600-17500 zone could provide support on any dip. However, we expect that bias is likely to remain in favour of bulls and we may witness sector-specific and stock-specific moves in upcoming sessions."

According to ICICIdirect.com, with Nifty OI just over one crore shares, the OI volume in index futures seen in March series couldn't be sustained as it fell in the first week of the April F&O series. Further, premiums rose significantly as cost is close to 100 points. Such high premiums don't bode well for markets as these can be attributed to ongoing short covering.

"Implied Volatility of Calls closed at 17.68 per cent, while that for Put options closed at 18.01. The Nifty VIX for the week closed at 19 per cent, which was slightly lower than the previous week. PCR of OI for the week closed at 1.42," remarked Bisht.

Despite an increase in volatility among global peers, India VIX subsided significantly and is currently hovering below 18 and its lowest level seen since January. The sharp decline in volatility index suggests markets entering the result season with positive bias. FIIs reduced net long positions and remained net sellers during the week. FIIs sold index futures to the tune of Rs1,320 crore and Rs6,428 crore in the stock futures segment, while they bought index options worth Rs6,456 since last Friday.

Bank Nifty

NSE's banking index closed the week at 37,752.05 points, a marginal further recovery of 402.05 points or 1.08 per cent, from the previous week's closing of 37,148.50 points.

"Bank Nifty also remained volatile and witnessed see-saw moves in a broader range of 38750 to 37350 levels. For Bank nifty, 38200 levels could cap any sharp upside in prices while 37000 level is likely to provide support to the index."

The highest Call base is at 38000 strike. The futures closed above this level. However, due to higher premiums, any major covering is not expected. Hence, Bank Nifty should consolidate for some time and declines towards the sizable Put base of 37500 remain a buying opportunity for the coming week.