Call writers shifting to higher bands

The NSE Nifty recorded a sharp pullback above 14,800 after touching a low below 14,300 last Thursday. Analysts attribute reason for buying support across the board to the financial year-end short covering during the truncated week as there was no trading on Monday and Friday on account of Holi and Good Friday respectively. Options data is indicating that Call writers are moving to higher bands.

The 15,000 strike has the highest Call OI followed by 14,900/ 15,100/ 15,200/ 15,500 strikes. The 14.900 strike recorded a reasonable addition of Call OI, while remaining strikes witnessed offloading of Call OI. Coming to the Put side, highest Put OI was seen at 14,000 strike followed by 14,500/ 14,800/14,700/14,600 strikes. Highest Put OI build-up was at 14,850/14,800/ 14,750 strikes, while remaining majority strikes recorded a fall in Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, the 14,600 and 14,700 strikes seen adding hefty Open Interest in Puts, while Call writers were seen shifting to higher bands which points towards strength in current rally from lower levels. On the higher side, the 15,000 level would act as a major hurdle for Nifty in upcoming sessions, while on downside bias will remain in favour of bulls as far Nifty holds above the 14,600-14,550 zone." Moreover, record GST collections also helped in improving sentiment further as the Nifty closed at the highest levels seen since mid-March. The Nifty gained almost 2.5 per cent during the week, while mid-cap and small-cap saw gains of more than 3.5 per cent during the week. Going ahead, analysts expect the NSE Nifty to find fresh upside momentum if it is able to sustain itself above 14,700 points.

From the options space, while the Call base remains at 15,000 Call strike, the Put base has inched up and moved to 14,700 strike. Despite the truncated week once again, options prices are richly valued, clearly suggesting expectations of volatility next week as well. According to ICICI Direct.com, the 14,700 points should be important support for the Nifty in the short-term and further strength can be seen if the closure among Call strikes.

ICICI Direct.com further stated that post February, volatility index continued to decline, which suggests more of a consolidation in broader markets and the Nifty has been largely in the range of 14,500 to 15,200 since then. Unless Nifty moves out of this range, we can't expect any major change of trend, said analysts. Hence, stock-specific moves may continue in the result season, accordingly, Nifty may also move in this range only.

The metal space out performed as it gained nine per cent last week. Analysts forecast FMCG and pharma stocks to continue upward movement in the week ahead.

"Indian markets ended the week on a positive note as bulls took the charge and lifted the sentiments for Nifty and Bank Nifty. Nifty ended the week above 14,850 mark, while leading banking names like Axis bank, ICICI Bank and Kotak Bank provided a boost to the banking index," said Bisht.

For the week ended April 1, 2021, BSE Sensex closed at 50,029.83 points, a net recovery of 1,021.33 points or 2.08 per cent, as against 49,008.50 points. NSE Nifty gained 360.05 points or 2.48 per cent and closed at 14,867.35 points from 14,507.30 points.

"The Implied Volatility (IV) of Calls closed at 20.57 per cent, while that for Put options closed at 21.13 per cent. The Nifty VIX for the week closed at 20.65 per cent. Put-Call Ratio of OI for the week closed at 1.67 and it indicates more Put writing than Calls," remarked Bisht.

Bank Nifty

The NSE's banking index Bank Nifty closed at 33,858 points, a net fall of 539.8 points or 1.62 per cent from 33,318.20 points. The banking stocks underperformed as they're under selling pressure at every rise, declines among heavyweights have been used as buying opportunity. Ahead of the result season, analysts predict short covering in the banking space if it is able to sustain above 34,200. As per data from ICICI Direct.com, the current price ratio of Bank Nifty-Nifty fell marginally to 2.28 level. The Bank Nifty may consolidate in a broader range.