Options data shows lack of buying interest

Reflecting undertone weakness in the market, the options data on NSE pointed to declining support and resistance levels by 1,000 points each. The 17,000CE and 16,000PE have highest Open Interest (OI) after the trading hours on last Friday.

The 17,000 strike has the highest Call base followed by 7,400/17,500/ 17,200/ 16,700/16,800 strikes. Major Call build-up is seen at 16,500/16,000/16,800/17,400/17,300 strikes. Barring 18,000CE, the OTM range 17,650-18,450 recorded minor OI offloading.

The 16,000 strike has a maximum Put base followed by 16,400-16,200/ 15500/16,200 strikes. 16,000/16,400/ 16,300/15,600 strikes added a reasonable addition of Put OI.

16,5550-17,500 ITM strikes witnessed marginal offloading of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers were seen adding hefty Open Interest at 16800 & 16700 strike, while Put writers were seen shifting at lower bands, which clearly shows lack of buying interest."

According to ICICIdiect.com, despite additions seen during the week, NSE Nifty near month futures Open Interest is still near one crore shares level, where FIIs formed fresh shorts. Net short positions from FIIs moved to their highest levels seen since March 2020. Hence, a bout of covering can be expected above 16500 towards 16800 levels.

Even from an options perspective, significant Call writing is visible at ATM and OTM Call strikes with highest OI at 17000 Call followed by 16500 strike. Due to sudden declines, Put option positions are now stuck and no major Put base is visible at OTM strikes. From a short-term perspective, levels near 16200 may act as support.

"Heavy selling was seen in Indian markets in the week gone by as NSE Nifty nosedived sharply towards two-month low tracking global as well as domestic factors," added Bisht.

For the week ended May 6, 2022, BSE Sensex closed at 54,835.58 points, a major drop of 2,225.29 points or 3.29 per cent, from the previous week's closing of 57,060.87 points. Registering a continuous fall of 691.30 points or 4.04 per cent, NSE Nifty ended the week at 16,411.25 points from 17,102.55 points a week ago.

Bisht forecasts: "From the technical front, both the indices have given sharp breakdown below its 200-day exponential moving average on daily charts. The trend is clearly in favour of bears as of now and we may witness further weakness in markets in upcoming week. On the higher side, now 16650-16800 zone would cap any further up move in Nifty, while on downside, 16200 level would act as an immediate support for the Nifty."

Volatility index India VIX gained 4.72 per cent to 21.25 level. Volatility index is still below 22 level and it suggests a recovery in coming sessions. "Implied Volatility of Calls closed at 19.28 per cent, while that for Put options closed at 20.19. The Nifty VIX for the week closed at 20.29 per cent. PCR of OI for the week closed at 1.44 lower than the previous week which indicates more Call writing than Put writing," added Bisht.

FIIs in the F&O space were primarily on the short side as they created fresh shorts in index futures to the tune of Rs2,500 crore and current net shorts are the highest seen since March 2020. Even in the options segment, major activities were observed at the beginning of the week ahead of the event as FIIs bought over Rs2,300 crore worth of index options.

Bank Nifty

NSE's banking index closed the week at 34,591.20 points, a marginal decline of 1,496.95 points or 4.14 per cent, from the previous week's closing of 36,088.15 points. "Bank Nifty also got hammered badly last week as index closed below 35,000 mark with loss of more than four per cent," remarked Bisht.

Majority banking heavyweights are trading near their Put bases. Hence, there may be a bounce if stocks hold their Put bases next week. Private banks slipped into pressure as the market witnessed fresh short OI addition during the week. However, even PSU banks gave up their initial gains and closed near the weekly low

The Fed raised interest rates by 50 bps, while a similar move was seen from BoE as well, facing unusual higher inflation risk. A fresh interest rate cycle can be seen in coming months where central banks across the world would try to tame inflation. This is likely to raise some doubts on the growth of corporates, which is why we can see selling continuing in the short-term, according to ICICIdirect.com.

The Bank Nifty began May month with lower OI base. However, it recorded fresh short additions. Along with the activity in the future, ATM and OTM Call writing quantum has increased, which should keep upsides in check. Analysts predict that any bounce towards 35500 levels should be used to create fresh shorts.