Options OI bases shifting to lower bands

Latest options data on NSE is indicating the downward movement of Open Interest (OI) bases as the resistance level declined by 200 points to 17,800CE and the support level further eased by 400 points to 17,000PE. Last week, the derivatives space recorded another round of aggressive Call writing at strikes ranging from 17,000 to 17,200 points amid weak trading. The 17,000-17,200 range has significant Call OI over 80 lakh shares each. Despite the highest Put base at ATM 17,000 strike, a closure among Call strikes is crucial for sustainable recovery.

The 17,800CE has highest Call OI followed by 17,500/ 18,000/ 17,900/ 17,600/ 17,300/ 17,100/ 17,400/ 17,300 strikes, while 17,100/ 17,200/ 17,300/ 17,500/ 17,900/ 17,750 strikes recorded significant build-up of Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000PE followed by 17,100/16,900/16,700/16,500/ 16,300/ 16,100/16,300 strikes. Further, 17,100/ 17,000/ 16,800/16,100/16,200 strikes witnessed moderate to heavy addition of Put OI.

Derivatives analysts predict volatile trading this week amid central banks rate decisions. Considering significant high shorts prevailing in the BFSI space may lead the recovery if any. Also, outperformance is likely to be seen in the pharma space considering ongoing long accumulation in sectoral heavyweights.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: “From the derivatives front, hefty Open Interest was seen adding at 17000 Put strike. In the week gone by, sharp sell-off was seen in the Indian market as Nifty and Bank Nifty both the indices ended with a cut of more than 1.50 per cent and two per cent respectively. Nifty has slipped below the 17,000 level for the first time in over five months, mostly taking cues from weak global markets. However, some of the losses recovered in later part of the week, as traders cover their short positions ahead of a weekend as Nifty managed to close at 17,100 mark.”

BSE Sensex closed the week ended March 17, 2023, at 57,989.90 points, a net loss of 1,145.23 points or 1.93 per cent, from the previous week's (March 10) closing of 59,135.13 points. NSE Nifty ended the week at 17,100.05 points, a decline of 312.85 points or 1.79 per cent, from 17,412.90 points a week ago. Bisht forecasts: “The 17,000 strike will act as a major support for Nifty in upcoming week, while on the higher side 17200 would act as an immediate resistance for the index. We expect markets to remain choppy in upcoming week and traders are advised to remain cautious if Nifty slips back below 17,000 level once again, selling pressure may mount after a breakdown which could take Nifty towards 16800-16700 zone.”

India VIX fell nine per cent to 14.78 level once again along with closures in OTM Call positions. “The Implied Volatility (IV) of Calls closed at 14.80 per cent, while that for Put options closed at 15.63 per cent. PCR of OI for the week closed at 1.07," remarked Bisht.

FIIs were aggressive and their net shorts in Index Futures at one of the highest levels. Such net shorts volume was seen during Covid time. Hence, post Fed policy, if Nifty sustains above 17250, a considerable up move of another 400-500 points can be expected due to short covering.

Bank Nifty

NSE’s banking index closed the week at 39,598.10 points, lower by 887.30 points or 2.19 per cent from the previous week’s closing of 40,485.40 points. The OI in Bank Nifty rose significantly by 22 per cent during the week along with the negative price action clearly indicating short additions. Bank Nifty managed to move below its support levels of 40,000 points. Bank Nifty is likely to be volatile and any major short covering move is only expected above 40000 levels in the coming weeks.