Range bound likely as option writers turn active

The 12,000 strike remains base for maximum Call Open Interest (OI) for a third consecutive week ended November 15, 2019.

Hence, the 12,000 strike will act as an immediate hurdle for NSE Nifty, which is consolidating amid more stock-specific action before taking out this level.

With volatility easing, option writers became active and this is indicating a range-bound trading for the week ahead (November 18-22, 2019), forecast derivatives analysts. As per the data panning out, it may take time for the index to consolidate further.

As many as 20.64 lakh contracts of Call OI were recorded at the 12,000 strike followed by 11,900 strike with 12.46 lakh contracts and 12,100 strike with 10.36 lakh contracts.

Options data points to a trading range of 11,700-12,100 points. The 11,800 strike has maximum Put accumulation and it's below in both weekly and monthly expiry. Call resistance remains lower.

Coming to Put side, 11,800 strike has maximum OI of 15.82 lakh contracts followed by 11,900 strike with 14.03 lakh contracts and 11,700 strike with 11.48 lakh contracts.

Reasonable Call writing was seen at 12,000 strike followed by 12,100 strike. Marginal Put writing was recorded at 11,500 points and 11,600 points.

"Volatility once again gripped the Indian markets in the week gone by as tug of war between bulls and bears kept the benchmark indices in a specific range.

On one hand, Nifty index ended the week on quite note, while on the other hand, Bank Nifty managed to hold above 31,000 mark.

From derivative front, Call writers remained active in 12,000 strike and created fresh short positions, while on downside 11,800 strike holds with highest Open Interest in Puts," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities.

BSE Sensex remained flat for the week at 40,356.69 points, a miniscule gain of 33.08 points or 0.08 per cent, from the previous close of 40,323.61 points.

NSE Nifty closed at 11,895.45 points from at 11,908.15 points. Nifty edged down by 12.7 points or 0.10 per cent.

"From technical front, both the indices are trading in a rising channel with formation of higher and higher bottom.

However, secondary oscillators suggest that consolidation in both the indices at higher levels is likely to continue in coming week as well and we might witness stock-specific action rather than any sharp move in index.

However, as far Nifty is holding above 11,800 mark the short-term trend is likely to remain bullish and any decisive move above 12,000 levels will add up further buying momentum towards 12,100 levels."

India VIX declined by 3.96 per cent to 15.03 level during the past week. Implied Volatility (IV) of Calls inched up during the week.

As the volatility eased to near 15 per cent level, it seems option writers have become active in the Nifty and range bound action is likely to be seen in coming weeks as well.

"The Implied Volatility of Calls was up and closed at 13.73 per cent, while that for Put options closed at 14.15 per cent.

The Nifty VIX for the week closed at 15.65 per cent and is expected to remain sideways. PCR OI for the week closed at 1.21, which points towards Put writing and is positive for markets," said Bisht.

Bank Nifty

Registering a net gain of 259 points for the week or 0.84 per cent, Bank Nifty closed at 31,008.40 points as against previous week's close of 30,749.40 points.

After opening positively, the banking index eased owing to profit booking on last hour of Friday trading. Banking stocks indicating a strong momentum, while long addition was seen in private bank stocks.

According to ICICI Bank.com, the Bank Nifty continued its outperformance from 28,000 levels and moved towards its sizeable Call base of 31,000 on the back of participation seen in most private bank leaders and SBI.

The Bank Nifty-Nifty price ratio during the eight sessions moved from 2.5 to 2.6 level. Analysts feel that the ratio may be stable near these levels and fresh break-out can be seen once there is closure in out of the money (OTM) strike Calls.