Options data points to consolidation range

The narrowing down space between resistance and support levels, as per the latest options data on NSE, is indicating a consolidation phase after two weeks of gains on the bourses. The support level moved up by 500 points to 17,000PE and resistance level also rose by 600 points to 17,600PE. From the options space, significant Put writing is seen at ATM strikes with 17,000 Put holding the maximum Open Interest.

The 17,600 strike has highest Call OI followed by 18,000/ 17,300/ 17,500/ 17,200/17,100/ 17,700 strikes, while 17,600/ 17,500/17,30017,200/ 17,700/ 17,800 strikes recorded reasonable addition of Call OI.

Coming to the Put side, maximum Put OI is seen at 17,000/ 16,900/16,800/17,100/ 16,700/ 16,500/ 16,300/ 16,200 strikes. Further, 17,000/ 17,100/ 16,900/ 16,250/ 16,300/ 16,500/ 16,900 strikes witnessed significant build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Put writers added hefty Open Interest at 17000 strike and held nearly 61 lakh shares. On the flip side, Call writers were seen shifting to higher bands, which points towards strength in current trend."

As per the ICICIdirect.com, the Call writers are getting trapped and they have rolled their positions towards 17500 strikes as well. However, Nifty may experience some consolidation in the short-term range with declines towards 16,800 remains a buying opportunity.

"Indian markets began August series on a positive note and ended higher for the second consecutive week as Nifty surged above 17150 mark with gains of more than 2.5 per cent over the week," said Bisht.

For the week ended July 29, 2022, BSE Sensex closed at 57,570.25 points, a hefty recovery of 1,498.02 points or 2.67 per cent, from the previous week's closing of 56,072.23 points. Registering a continuous rebound of 438.80 points or 2.62 per cent, NSE Nifty ended the week at 17,158.25 points from 16,719.45 points a week ago.

Bisht forecasts: "From technical front, a fresh breakout in Nifty has been observed on daily charts above 16800 mark, which would act as a strong support for the index in upcoming sessions. The bias is likely to remain in favor of bulls and we expect Nifty to move towards its next resistance of 17400 levels in upcoming weeks."

Nifty began the August F&O series with just nine million shares, lowest since inception. The significant covering in the settlement week by FIIs may have caused lower OI. FIIs have turned net buyers for the first time in 2 months. They covered shorts and have formed fresh longs as well which should keep the momentum intact.

On the rollover front, the Nifty saw lower rollover of 75.69 per cent from previous 74.81 per cent and the three-month average of 77.27 per cent with a rollover cost of 25.6 points. With the OI addition, it indicates some of the longs in the Nifty have not got carried forward.

Nifty VIX fell 2.72 per cent to 16.55 level. Hence markets are not expecting any major weakness and focus might shift to mid-cap stocks where stock-specific action might be seen in coming sessions.

"Implied volatility (IV) of Calls closed at 15.87 per cent, while that for Put options closed at 16.69 per cent. The Nifty VIX for the week closed at 17.01 per cent. PCR of OI for the week closed at 1.45 lower than the previous week," adds Bisht.

Bank Nifty

NSE's banking index closed the week at 37,491.40points, a net recovery of 752.45 points or 2.04 per cent, from the previous week's closing of 36,738.95 points. "Bank Nifty also gained as HDFCBANK, ICICBANK & Axis Bank took the lead," remarked Bisht.

Bank Nifty started the August F&O series with a relatively lower OI base, which is a positive sign as fresh longs would be formed in coming days. FIIs aggressively closed their short positions in the Index futures. The current leg of long accumulations by FIIs in the Index future segment would provide the ongoing momentum to sustain.