Put OI shifting to higher bands

With the key resistance level remains at 11,000 strike for second consecutive week, the support level moved up from 10,000 strike to 10,400 strike as the highest Open Interest (OI) is seen at 11,000 CE and 10,400 PE. Put-Call Ratio (PCR) of all strikes is hovering at 1.14 and it's indicating neutral market.

Since Nifty witnessed good move above the June expiry level of 10280, the broad-based index may consolidate above this level as the index is nearing overbought zone and it may also lead to a good move for specific stocks. If Nifty fails to close above 10,630 level, then sideways trading expected for next few sessions, observed derivatives analysts.

The 11,000 strike, which recorded maximum Call OI buildup of 12.23 lakh contracts, has highest Call OI of 27.72 lakh contracts followed by 10,600 strike, which witnessed Call OI addition of 9.28 lakh contracts, with 24.38 lakh contracts, 10700 strike with 19.40 lakh contracts and 10,800 strike, which has OI of 6.42 lakh contracts, with 19.18 lakh contracts.

Coming to Put side, 10,400 strike, which has maximum Put OI addition of 8.30 lakh contracts, has highest Put OI of 23.33 lakh contracts followed by 10,000 strike with 20.27 lakh contracts, 10300 strike with 15.44 lakh contracts and 10200 strike with 14.36 lakh contracts. Further, 10,500/10,400/ 10,000 strike witnessed significant addition of Put OI. The PCR for 10,400 strike is 5.2 and indicating support level for the NSE Nifty.

Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd, said: "From derivatives front, Put writers were once again seen shifting to higher bands, while Call writers also are feeling discomfort at current juncture, which suggests that bullish momentum will likely to continue in coming sessions as well."

For the week ended July 3, 2020, BSE Sensex closed at 36,021.42, a net gain of 850.15 points or 2.47 per cent, from the previous close of 35,171.27 points. Similarly, NSE Nifty too rose by 224.35 points or 2.16 percent, and closed the week at 10,607.35 points as against last week's 10,383 level.

Bisht forecasts: "From technical front, as far Nifty is concerned, the index has made strong base around 10,350-10,400 zone. However, Nifty is holding above that, and the bias is likely to remain bullish and any dip onto the prices should be used to create fresh longs." The easing volatility indicates the option writing trend. It may further continue in next few sessions.

The volatility index started a move below 30 level. Analysts consider this as good for the stability in the market. Sharp swings may not be seen in the index and it should broadly remain above 10,300. Also, June and July remained relatively low volatile months this year so far.

Implied Volatility (IV) eased for the third consecutive week. India VIX declined 2.80 per cent to 25.75 level and is showing bullish mode for the market. "The Nifty VIX for the week closed at 26.51 per cent and is expected to remain sideways.

PCR OI for the week closed at 1.53 and it indicates more Put writing as compared to Calls," added Bisht.

In the F&O space, the first week of the July series witnessed muted activity on the FIIs front. While FIIs bought over Rs766 crore in index futures and sold Rs3,119 crore in index options, while they covered short positions to the tune of Rs863 crore in the stock futures.

Bank Nifty

Adding 260.35 points or 1.20 per cent for the week, Bank Nifty closed at 21,852.40 points as against 21,592.05 points. "Now, Bank Nifty is facing hurdle at 22,450 levels above and follow through buying may witness in the index which could take Bank Nifty towards 23,000 levels as well," said Bisht.

According to ICICI Direct.com, Bank Nifty started the July series with a discount of almost 100 points whereas the rollover was in line with the expectation. As the series progressed, the discount in the Bank Nifty narrowed marginally, pointing towards short covering.

Huge Put OI additions are seen in 21,000 strike Put, which remains the key support area for upsides to continue. Looking at the writing positions in Call, we feel the index could move towards 23,000 in coming days.

The price ratio of Bank Nifty-Nifty declined on the back of outperformance in Nifty, which rallied towards 10,600 level, whereas the banking index remained flat at 22,000. Analysts feel the ratio may consolidate near 2.08 levels.