Call writers shifting to higher bands

The latest options data on NSE after the last Thursday session is pointing to shifting of positions by Call writers to higher strikes. The resistance level rose by 250 points to 17,850CE and the support level increased by 300 points to 17,800PE. It's suggesting that the market is likely to move upwards, but in a restricted range.

The 17,850CE has the highest Call OI followed by 18,000/ 17,900/ 17,800/ 18,100. Only 17,850CE recorded significant build-up of Call OI, while remaining ITM and OTM strikes witnessed declining OI.

Coming to the Put side, the maximum Put base is seen at 17,800/ 17,600/ 17,700/ 18,750/ 17,300 strikes. Further, the 17,800PE witnessed reasonable addition of Put OI, while remaining ITM and OTM strikes recorded fall in OI.

Nifty was trading above 17,800 level and Call writing was relatively higher than Puts suggesting expectations of limited upsides. The highest Call base is placed at 17,850 strike. If the short covering trend continues then a move towards these levels can't be ruled out. However, Nifty is likely to exhibit a range-bound movement in coming sessions.

Dhirender Singh Bisht, associate vice-president (technical research-equity) at SMC Global Securities Ltd, said: "From the derivatives front, Call writers were seen shifting to higher bands after Call unwinding observed at 17800 strike. On the contrary, Put writers hold maximum Open Interest at 17,800 strike."

The OI base in Nifty is nearly at a one-year low as short closures continued during the April F&O series. FIIs reduced their net shorts to 40,000 contracts from 1.95 lakh contracts seen in mid-March. It's suggesting a fresh accumulation of positions and it may provide required cues for directional movement for the market.

"In the week gone by, bulls controlled the domestic markets as Nifty ended the week with a gain of over a percent, thereby registering its third straight weekly advance.

However, the banking index outperformed over the week and ended with gains of more than 2.50 per cent. Disappointing numbers from TCS put pressure on IT stocks; the IT index closed in the red zone over the week," observed Bisht.

BSE Sensex closed the week ended April 13, 2023, at 60,431 points, a net recovery of 598.03 points or 0.99 per cent, from the previous week's (April 7) closing of 59,832.97 points. NSE Nifty ended the week at 17,828 points, a rebound of 228.85 points or 1.30 per cent, from 17,599.15 points a week ago.

Bisht forecasts: "Technically both the indices can be seen rising with formation of higher bottom pattern and holding well above its 200-day Exponential Moving Average on the daily charts.

We expect the bullish momentum to continue in upcoming week as well, with Nifty likely to move towards 18,000 level. Bank Nifty has its next immediate hurdle at 42,500-42,700 zone, while on downside, the 41,500-41,000 zone is likely to act as a major support for the index."

India VIX fell 2.97 per cent to 11.91 level. The volatility index India VIX remained low at 12 level throughout the week along with US VIX, which moved towards 19 level. An uptick in volatility can't be ruled out this week and it may result in marginal profit booking in coming sessions.

"The Implied Volatility (IV) of Calls closed at 11.05 per cent, while that for Put option, it closed at 12.03 per cent. The Nifty VIX for the week closed at 12.27 per cent. PCR of OI for the week closed at 1.29 higher than the previous week, this indicates more Put writing than Calls," remarked Bisht.

According to data from ICICIdirect.com, FII were keen on the index segment and continued to close their shorts aggressively. Moreover, FIIs further reduced their bearish bets in the Put options and net long Puts declined considerably to near 2.50 lakh contracts.

Bank Nifty

NSE's banking index closed the week at 42,132.55 points, a modest recovery by 91.55 points or 0.22 per cent from the previous week's closing of 41,041 points.

Bank Nifty rallied nearly 3,000 points in the last three weeks owing to short covering by Call writers.

Further, the futures positions were followed by cash-based buying in banking stocks. Current volatility and positive global sentiments should also support the current momentum.