Call writers in short covering mode

As per the latest options data on NSE, the trading range is narrowing down as resistance level declined by 200 points to 17,300CE strike and support level further moved up by 200 points to 17,200PE.

The 17,300 strike has the highest Call base followed by 17,500/ 17,400/ 17,600/ 17,800 strikes. Significant Call addition is seen at 17,300/17,350 strikes, while 17,000/16,900 / 17,200/ 17,500/ 17,100/ 17,800 strikes witnessed major drop in OI.

Coming to the Put side, maximum Put OI is seen at 17,200 strike followed by 16500/17,250 /17,300/16,900/16,600/16,700 strikes. Other strikes 17,200/17,250/ 17,300/17,000 recorded major build-up of Put OI. From 16,900PE to all the OTM strikes witnessed a reasonable to minor drop in OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, short covering was observed by Call writers at the 17000 strike, which pushed the NSE Nifty towards17250 mark."

With the second weekly gains in place, Call bases have been distorted majorly in the last couple of sessions. Considering the highest Put base of 17,000 level, where continued addition is visible, ICICIdirect.com predicts that NSE Nifty should find support around these levels and one can utilise any decline towards17000 to create fresh longs. On the higher side, while immediate resistance may be experienced around 17500, the major hurdle for the Nifty remains near 17800 strike.

Short covering took place in the headline indices during the week. Nifty near month Open Interest declined substantially by almost 15 per cent in the last few sessions.

The short covering expectations in the banking and cement stocks have panned out. With significant short OI still placed in these stocks, any decline seems to be limited and should provide support to the markets in case of any intermediate dip, according to ICICIdirect.com.

"Indian market extended its previous week gains as Nifty surged more than 3.50 per cent, while Bank Nifty ended the week with gains of more than five per cent on the back of positive global Cues. The rally got extended over the week after the Fed rate hike, softening oil prices and progress in Russia- Ukraine talks boost sentiments of bulls," adds Bisht.

For the week ended March 17, 2022, BSE Sensex closed at 57,863.93 points, a further recovery of 2,313.63 points or 4.16 per cent, from the previous week's closing of 55,550.30 points. Registering a gain of 656.60 points or 3.94 per cent, NSE Nifty ended the week at 17,287.05 points from 16,630.45 points a week ago.

Bisht forecasts: "From the technical front, NSE Nifty has once again managed to close above its short and long-term moving averages on daily and weekly charts after witnessing a V shape recovery from its recent lows. Going forward, we expect that bulls will dominate the Indian market, while intraday volatility cannot be ruled out. On the higher side, the 17400-17500 zone will act as a strong resistance zone for Nifty while the 17000-16900 zone will provide support on any pull back."

India VIX fell 6.25 per cent to 22.61 level, which is still indicating high volatility in the market. "Implied Volatility of Calls closed at 22.73 per cent, while that for Put options closed at 24.17. The Nifty VIX for the week closed at 24.12 per cent, which was higher than the previous week. PCR of OI for the week closed at 1.46," remarked Bisht.

Net short positions by FIIs also reduced drastically to nearly 17,000 contracts from more than 60,000 contracts seen in the first half of the series. FII activity in the F&O space was changed considerably last week as they have turned buyers in both index as well stock futures. While FIIs closed their short positions in index futures segment as they bought over Rs1,590 crore, the activities in stock futures remained muted. FIIs also bought index options worth Rs5,148 crore, according to the data from ICICIdirect.com.

Bank Nifty

NSE's banking index closed the week at 36,428.55 points, a net recovery of 1,882.30 points or 5.44 per cent, from the previous week's closing of 34,546.25 points.

Bank Nifty recorded reasonable Call OI at 36,500 and 37,000 strikes as the index reverted from lower levels, Put writing volumes rose as traders gained confidence. Derivatives analysts predict that the overall set-up for Bank Nifty remains positive. Within a couple of sessions, the Bank Nifty is expected to reach 37000 level.