Long unwinding at higher strikes

Indicating losing strength of upward momentum, the Open Interest (OI) on Put side declining, while Call strikes recorded heavy OI addition. The support level declined by 1,000 points to 17,000PE and resistance level fell 600 points to 18,000CE as per the latest data on NSE after the last Friday session.

The 18,000CE has the highest Call OI followed by 19,000/18,200/18,100/ 18,300/ 18,400/ 18,500/ 18,700 strikes, while maximum Call OI addition is seen at 18,000CE. Further, 18,100/ 17,900/ 18,200/18,800 strikes recorded hefty build-up of Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000PE followed by 17,800/ 17,500/17,900/ 17,000/17,400/17,300/17,200 strikes. 17,000/ 17,300/ 17,600/ 17,800/17,900 strikes added a reasonable addition of Put OI.

As the market nearing December derivatives monthly expiry, once again the Call OI in Nifty is significantly higher than Put OI. However, the Nifty for the last week closed below its Put base of 18000 level. Further, there were no closures in the 18000PE strike and it keeps hopes of a pullback alive.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, long unwinding has been witnessed at higher levels along with hefty Open Interest addition in 18000,18100 & 18200 strikes. Put writers remained on back foot as Open Interest had been seen shifting at lower bands."

Last week, broader markets slipped into selling pressure after an unexpected rate hike by the Bank of Japan (BoJ) on Monday. Further, the selling intensified as a fresh Covid surge in China created fears among investors. NSE Nifty suffered one of the biggest declines since June as it closed below 18000. Meanwhile, the mid-cap and small-cap space indices fell five per cent and eight per cent respectively.

"Intense selling pressure was witnessed in Indian markets in the week gone by as Nifty slipped below 18000 level, while Banking Index hammered down by nearly three per cent over the week as investors remained cautious of rising Covid cased in China, the US, Japan, Korea and Brazil," observed Bisht. BSE Sensex closed the week ended December 23, 2022, at 59,845.29 points, a heavy fall of 1,492.52points or 2.43 per cent, from the previous week's closing of 61,337.81 points. NSE Nifty ended the week at 17,806.80 points, further lower by 462.20 points or 2.52 per cent, from 18,269 points a week ago.

Bisht forecasts: "Technically Nifty has slipped back below its 50-day exponential moving average on daily charts and can be seen trading lower with formation of lower bottom pattern. For the upcoming week, we keep our cautious stance intact for Indian markets as there are no signs of respite seen in data. On the higher side, the 18150-18250 zone would act as a strong hurdle for the Nifty and we expect selling pressure to continue in the upcoming week as well. The Technical support zone for Nifty is seen in the range of 17800-17750 level."

Volatility index India VIX rose 6.40 per cent to 16.16 level. Volatility globally rose as a new strain of the Covid variant is creating panic among investors. India VIX also moved towards 16 per cent, which is expected to keep traders on their toes coupled with rollover activity due to December F&O settlement. India VIX rose 10 per cent in the last five sessions. Due to higher volatility and pick-up in the rollover activity, investors need to be alert on the market. If Nifty moves above 18200 level again then some stability is expected.

"Implied Volatility (IV) of Calls closed at 14.08 per cent, while that for Put options closed at 15.58 per cent. The Nifty VIX for the week closed at 15.19 per cent. PCR of OI for the week closed at 0.73," added Bistht. FIIs' net derivatives positions in index futures showed a significant shift recently. The December series started with 97,000 net long, which is now at net short of 14,000. Also, FIIs liquidated their position in stock futures.

Bank Nifty

NSE's banking index closed the week at 41,668.05 points, a decline of 1,551.45 points or 3.58 per cent, from the previous week's closing of 43,219.50 points.

There was no meaningful recovery in any major scrip. This has kept upsides limited in the Bank Nifty. Even at the index level, there was a huge build-up of Call positions. It should further limit upsides in the index in the expiry week. Major indices are trading near their support after Friday's fall. However, if the Bank Nifty does not manage to close above 42500 again, more downsides are expected with expiry taking place on a bitter note. Bank Nifty violated its Put bases and now the OI build-up is placed in far OTM strikes as well. Hence, there could be a broader move in the index where on upsides, 42500-43000 levels remain important with some stability expected only above these levels.