Staggered Open Interest buildup indicates resistance for Nifty

With bearish undertone dampening the market sentiment, the options band for the week ahead is likely to be 9,000-9,500 levels amid moderate volatility. The continuous addition of Open Interest (OI) at 9,400 and 9,500 Call strikes further point towards a limited upside in the prices, forecast derivatives analysts. The futures and options (F&O) holds the view that the market is lacking any strong direction level upside or downside. Hence, investors are advised to trade cautiously. The significant Put OI addition at 9,400 strike indicates strong resistance for NSE Nifty.

After the relief rally was seen last session, majority of Nifty stocks were back in the red following weak global cues. On the weekly option front, additions were seen in 9,000 Put and 9,500 Call, while they were also seen in ATM strike. This indicates it may consolidate largely within a range of 9,000 to 9,500 in coming days. The highest Call OI of 17.17 lakh contracts is seen at 9,500 strike followed by 10,000 strike, which recorded maximum OI addition of 8.77 lakh contracts, with 16.87 lakh contracts and 9,400 strike with 10.86 lakh contracts. Coming to Put side, 9,000 strike recorded highest Put OI of 11.91 lakh contracts followed by 8,500 strike with 9.34 lakh contracts and 8,800 strike with 7.80 lakh contracts. The 9,000 strike has highest Put OI buildup of 2.70 lakh contracts.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "On the derivatives front, we are witnessing a continuous addition of Open Interest at 9,400 and 9,500 Call strikes that point towards a limited upside in the prices. However, on the downside, marginal Put writing was observed at 9,000 strikes, which should act as strong support for Nifty."

"After settling with strong gains in the April series, the Indian market began the May series on a negative note with bears once again taking control over the markets. Subdued global cues along with weak earnings of big domestic companies and India's record low April manufacturing PMI data aggravated the worries of investors," added Bisht.

For the week ended May 8, 2020, BSE Sensex closed at 31,642.70 points, a net loss of 2,074.92 points or 6.15 per cent, from the previous close of 33,717.62 points. Similarly, NSE Nifty too declined by 608.4 points or 6.17 percent, and closed the week at 9,251.50 points as against last week's at 9,859.90 points. Bisht forecasts that "on the technical front, secondary oscillators and price action is suggesting some consolidation in a broader range of 9,000-9,500 in the coming sessions."

According to data at ICICI Direct.com, FPIs bought Rs19,056 crore, while DIIs bought Rs3,818 crore in the cash segment. FPIs sold index futures worth Rs1,628 crore, while they bought Rs1,493 crore in index options. In the stock futures segment, FPIs sold Rs2,977 crore. Nifty VIX declined over two per cent to 38.54 level.

"The Implied Volatility of Calls closed at 34.23 per cent, while that for Put options closed at 36.65 per cent. The Nifty VIX for the week closed at 39.93 per cent and is expected to remain volatile. PCR OI for the week closed at 1.37 down as compared to last week at 2.09, which indicates Call writing. At the current juncture, traders should remain focussed on stock-specific moves and are advised to trade cautiously tracking global markets as volatility is likely to grip the domestic markets in the coming few sessions," remarked Bisht.

Nifty futures closed five points premium with a drop in IV by 3.3 per cent. The premium for 9,500 Call strike for May 14 expiry rose over 18 per cent to Rs83.95, while 9,000 Put strike premium fell 50 per cent to Rs53.95. Nifty May futures added seven per cent in OI. Considering the derivatives data, the overall market breadth seems to be negative, further added the analysts.

Bank Nifty

Gaining by 2,181.60 points or 10.13 per cent for the week, Bank Nifty closed at 19,352.90 points as against 21,534.50 points. The 19,000 Put premium for Bank Nifty fell 50 per cent to Rs197 and it recorded Call OI of 2.57 lakh contracts. The premium for 20,500 Call strike and 21,000 Call strike rose marginally 14.2 per cent and seven per cent respectively.