Strong Put OI surge indicates hedging cover by investors

The resistance level remained at 22,500CE for a second consecutive week, while the support level moved up by 700 points to 21,700PE, according to the options data on NSE after the last Friday session. Analysts said that strong build-up of OI in Put options is indicating that investors were resorting to hedging strategies.

The 22,500CE has highest Call OI followed by 22,300/ 21,900/ 22,000/ 22,600/ 22,700/ 22,250/ 21,800/ 21,700 strikes, while 22,600/ 22,600/ 22,250/ 22,300/ 22,800/ 21,900 strikes recorded reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 21,700 followed by 21,800/ 21,000/ 21,900/ 22,000/ 21,300/ 21,200/ 21,500 strikes. Further, 21,700/ 21,800/ 21,000/ 21,400/ 21,200/ 21,650/ 21,850 strikes witnessed significant build-up of Put OI.

Dhirender Singh Bisht, associate vice-president (technical research) at SMC Global Securities Ltd, said: “In the Nifty options segment, the highest Call Open Interest is held at 22,300 strike followed by 21,900 strike whereas on the Put side, the highest Open Interest is at the 21,700 and 21,800 strikes, which was tested last week.” Despite a modest decrease in Nifty Open Interest (OI), it remains elevated at around 1.3 crore shares. Such considerable leverage could potentially initiate a round of liquidation, emphasizing the need for caution if the index falls below the 21,500 level. Simultaneously, there has been noteworthy volatility in Nifty premium, fluctuating sharply from 140 points to 70 points alternately, indicating uncertainty at higher levels.

“Nifty experienced a weekly gain around 0.8 per cent, reaching a new record high during Friday’s session. In contrast, Bank Nifty witnessed a profit booking, leading to a decline of nearly 0.9 per cent on a weekly basis. In the last week, IT, realty and oil & gas sectors remained major gainers whereas, the profit booking was noted in the FMCG, financial services and banking stocks,” added Bisth.

BSE Sensex closed the week ended January 12, 2024, at 72,568.45, a net recovery of 542.30 points or 0.29 per cent, from the previous week’s (January 5, 2024) closing of 72,026.15 points. During the week, NSE Nifty too edged up by 183.75 points or 0.84 per cent lower at 21,894.55 points from 21,710.80 points a week ago.

Bisht forecasts: “The immediate support for the Nifty lies in the range of 21,600-21,500 zone, while on the higher side 22,200-22,300 zone would act as an immediate hurdle for the markets. We expect that bullish momentum is likely to continue in the upcoming week as well with some intraday volatility. However rotational buying can also be seen as traders seen shifting to sectorial moves once again.”

India VIX rose 2.60 per cent to 13.10 level. On the volatility front, India VIX has experienced a significant decrease, concluding the week near its lows after reaching almost six-month highs in the preceding week.

“Implied Volatility (IV) for Nifty’s Call options settled at 12.34 per cent, while Put options concluded at 13.07 per cent. The India VIX, a key indicator of market volatility, concluded the week above 13 level. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.42 for the week,” further said Bisht.

Anticipated quarterly results from key index heavyweights may elevate stock-specific volatility, while overall, a positive outlook is expected for the headline index as long as it remains above the 21,500 level.

FPI activity has notably intensified, resulting in relatively range-bound settlement movements across all indices throughout the week. This trend seems poised to continue into the upcoming week, with substantial writing observed at both At-The-Money (ATM) Call and Put strikes, indicating a continued phase of consolidation.

Bank Nifty

NSE’s banking index closed the week at 47,709.80 points, further lower by 499.20 points or 0.93 per cent from the previous week’s closing of 48,159 points. “For Bank Nifty, the highest Call Open Interest is at the 48,000 strike, while the highest Put Open Interest is at the 47,500 strike,” remarked Bisth.