Options data signals overstretching mkt

Consolidation Likely

• Highest Call OI at 22,000CE
• Highest Put OI at 21,500PE
• Nifty rollover into Jan F&O series at 79%
• Bank Nifty rollover at 81%

The resistance level remained at 22,000CE for a second consecutive week, while the support level moved up by 500 points to 21,500PE. The 22,000CE has highest Call OI followed by 22,500/ 23,000/ 22,700/ 21,800/ 21,900/ 22,800/ 22,550 strikes, while 21,800/ 22,000/ 23,000/ 22,700 strikes added a reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 21,500PE followed by 21,000/ 21,200/ 21,600/ 21,700/ 20,900 strikes. Further, 21,400/ 21,500/ 21,700 strikes recorded moderate build-up of Put OI.

Dhirender Singh Bisht, associate vice-president (technical research) at SMC Global Securities Ltd, said: “Analyzing Nifty’s derivatives data, the highest Call writing seen at the 22,000 and 22,500 strikes. Conversely, Put writers displayed activity, particularly at the 21,700 and 21,500 strike points.”

Put writers were aggressive due to ongoing rally in the domestic market, stocks with the highest Call base being placed at 22,000 followed by 21,500 strikes. Despite volatility, earlier Put writing largely remained at 21,000/ 21,200 and 21,500PE held significant open interest. Hence a round of consolidation is expected in Nifty and any move above 21,600 may trigger further directional movement.

“In the past week, the Indian stock markets witnessed a robust performance, with both Nifty and Bank Nifty indices recording gains of more than 1.5 per cent. Last week both indices touched the records high. Auto, metal and FMCG sectors demonstrated relative strength as compared to the overall market, while profit booking was seen in IT and media stocks,” added Bisht.

BSE Sensex closed the week ended December 29, 2023, at 72,240.26, a net recovery of 1,133.30 points or 1.59 per cent, from the previous week’s (December 22) closing of 71,106.96 points. During the week, NSE Nifty too gained 382 points or 1.78 per cent to 21,731.40 points from 21,349.40 points a week ago.

Bisht forecasts: “Presently the Nifty’s rollover rate has experienced an increase compared to the previous month. In the prior month, the rollover rate was at 73 per cent, whereas this month, it rose to 79 per cent. The rollover rate for the January series is somehow the same as the average of the past three months. On the flip side, Bank Nifty has seen the same rate of rollover to 81 per cent, aligning with the average of the last three months. Based on this rollover data, we can anticipate sluggish momentum in Bank Nifty, while Nifty may show some directional movement. Market is currently over stretched and India VIX is at 8-month high. However, the rollover rate is higher than the previous month, which indicates that the market will remain in the favour of bulls with some volatility on the cards.”

According to ICICIdirect.com, Nifty futures December OI rose to above 1.10 crore on the back of aggressive longs. Expiry week Nifty may experience some volatility at higher levels due to high leverage. Currently, December series VWAP is near 21,150 level, which should act as an immediate support for Nifty.

India VIX fell 4.21 per cent to 14.50 level and it’s one of the highest levels for the volatility in the last six months. However, it came down immediately to the levels of 13.5 after sharp pullback was seen and settled at 14.50 mark. A rise in volatility remains a crucial risk as the market is set to enter new series. Hence, one should consider levels near 21,000 as a stop loss for long positions.

“Implied Volatility for Nifty’s Call options settled at 14.09 per cent, while Put options concluded at 15.23 per cent. The India VIX, a key indicator of market volatility, concluded the week near 15 level. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.72 for the week,” remarked Bisht.

FIIs net longs in Index futures edged up despite some closure seen on Friday’s session and net longs contract increased to 85,000 contracts last week from 50,000 contracts in the previous week. FIIs continued aggressive longs in the stock futures segment and they finished the week with net longs of 2,60,000 contracts, which is 18 months high. Given the aggressive long positions, downsides should be limited this week as well.

Bank Nifty

NSE’s banking index closed the week at 48,292.25 points, lower by 800.40 points or 1.68 per cent from the previous week’s closing of 47,491.85 points. “In Bank Nifty, the highest Call Open Interest was observed at the 48,500 and 49,000 strikes, while on the Put side, it was concentrated at the 48,000 strike,” observes Bisht.

The price ratio of Bank Nifty-Nifty rose marginally. On the back of sectoral rotation, money inflows may be expected in BFSI. The current price ratio should move to 2.30 level this week.