Options writers covering short positions

The highest Open Interest (OI) bases at 17,600CE and 17,500PE are pointing to narrow-range, but either side of break is possible to set the market direction for the week ahead. The 17,600CE strike has the highest Call base followed by 17,700/ 17,650/ 17,800/ 18,000/ 17,900/ 17,500 strikes, while only 17,600 strike witnessed modest addition of Call OI. Remaining OTM and ITM strikes witnessed offloading of Call OI.

The 17,500PE has maximum Put OI followed by 17,600/ 17,500/ 17,000/ 17,300/ 17,450/16,800 strikes. Further, barring 17,600 and 17,550 strikes, remaining OTM strikes witnessed a drop in Put OI, while ITM strikes recorded bleak OI bases.

Dhirender Singh Bisht, associate vice-president (technical research-equity) at SMC Global Securities Ltd, said: “Writers were covering short positions on the Call side suggest the market will go up. But when we consider declining OI on Put side, it means that options writers are not sure about market trends. Either side break out is possible and that will confirm the market trend.”

Barring 17,600CE, mostly ITM and OTM strikes from 18,300 to 16,000 witnessed declining OI. Coming to the Put side, only 17,550/17,600/17,650 strikes witnessed heavy to modest addition of Put OI. Remaining ATM and ITM strikes recorded fall in Put OI.

Derivatives analysts expect that Nifty may extend its move towards 17,800 amid expectations of continued short covering in rate sensitive stocks, whereas declines towards 17,400 provide a buying opportunity.

“Broader indices bounced back and closed in green for the second consecutive week. Nifty and Bank Nifty both the indices ended the week with gains of more than one per cent and are trading well above their rollover levels. Buying interest was seen in infra and realty stocks whereas IT and Oil & gas stock faced pressure in the week gone by. From the domestic front, there is a pause in a rate hike by the RBI as announced last week,” added Bisht.

BSE Sensex closed the week ended April 7, 2023, at 59,832.97 points, a net loss of 841.45 points or 1.42 per cent, from the previous week’s (March 31) closing of 58,991.52 points. NSE Nifty ended the week at 17,599.15 points, a decline of 239.40 points or 1.37 per cent, from 17,359.75 points a week ago.

Bisht forecasts: “Technically both the indices are trading above its 200-Exponential Moving Average on daily interval, and also above its short-term 50 period Exponential Moving Average. For the upcoming week, we keep our stance, bullish for the Nifty and expect markets to remain volatile as well. On the lower side, 17200- 17300 would act as a major support for the index, below which we could witness further downside towards its next support of 17,000 points.”

India VIX fell 4.95 per cent to 11.80 level. “The Implied Volatility (IV) of Calls closed at 11.09 per cent, while that for Put options closed at 12.35 per cent. The Nifty VIX for the week closed at 12.41 per cent. PCR of OI for the week closed at 1.23 higher than the previous week indicates more Put writing than Call,” remarked Bisht.

FIIs in F&O space were keen on the index segment as they continued to close their short positions. Net shorts in Index futures declined from almost 1.95 lakh contracts to 1.1 lakh contracts suggesting continued short covering. Moreover, FIIs reduced their bearish bets in the Put options. Net longs in Puts declined considerably to nearly three lakh contracts.

Bank Nifty

NSE’s banking index closed the week at 41,041points, lower by 432.35 points or 1.06 per cent from the previous week’s closing of 40,608.65 points.