Options data points to long unwinding

Despite fluctuations of key indices in positive or negative terrains, the resistance and support levels for the NSE Nifty remain at same levels for a third consecutive week as the highest Call Open Interest (OI) and Put OI are at 16,000CE and 14,000PE respectively. Build-up of short positions is taking place in Nifty, Bank Nifty, Fin Nifty along with long unwinding that's significantly witnessed in these indices.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From derivatives front, Call writers were seen adding hefty Open Interest at 15,200 strike, while Put writers were seen at 15,000 strike, which holds maximum Open Interest of nearly 34 lakh shares seen shifting to lower bands."

The highest Call OI is seen at 16,000 strike followed by 15,500/15,200/15,350 strikes. 15,200/15,000/15,500 strikes recorded reasonable addition of Call OI. Coming to the Put side, the 14,000 strike has the highest Put OI followed by 15,000/14,500/ 14,800 strikes. 14,800/ 15,100/ 14,500 strikes witnessed significant build-up of Put OI. Most active Call strikes are in the range of 15,100-15,400, while active Put strikes include15,000/ 14,900/ 14,800/ 15,100/ 14,700.

In F&O space, some fresh selling in Nifty and long unwinding was also seen in Bank Nifty. Index futures Long Short Ratio is at 61 per cent and it indicates maximum longs in system. According to data from sharekhan.com, about 0.69 lakh shares were shed in Open Interest with a decrease in prices and it indicates that long unwinding was observed by market participants.The market recorded OI of Rs 43,206 crore taking the total OI in the F&O segment to Rs 5,65,435 crore. The Nifty Call option added 137.77 lakh shares in Open Interest and the Put option recorded OI of 64.86 lakh shares.

Tracking to negative global cues, the NSE Nifty opened with a gap down of 50 points and continued to decline further for the fourth continuous day. All sectoral indices closed in the negative zone ranging from 1-2 per cent.

"After hitting record highs, Indian markets turned negative during the later part of the week as traders booked profit ahead of the weekend. Auto, and banking stocks corrected sharply from their recent highs while the oil and gas sector remained firm during the week," adds Bisht.

For the week ended February 19, 2021, BSE Sensex closed at 50,889.76 points, and NSE Nifty fell by 181.55 points.

Bisht forecasts: "For upcoming week, we expect markets to remain under pressure as far Nifty is trading below 15,200 marks. However, technical indicators suggest that volatility will likely grip the market with some stock specific action. On downside, 14,800 is next support for nifty and bias is likely to remain in favour of bears as far as 15,200 levels on the higher side are intact."

At present, 14,900-15,000 is an immediate support zone and follow-up activity may dictate next course of action. With gains in the range of 1-2 per cent, stocks such as UPL, Dr Reddy's Lab, IndusInd Bank, Hindustan Lever and Gail were top gainers. ONGC, Tata Steel, Hero Motoco, Tata Motors and SBIN were top losers that fell by 3-4 per cent.

Foreign institutional investors (FIIs) were net buyers on Friday as their net transactions were Rs 281.18 crore in F&O trading. FIIs were net sellers for three sessions during February 16-18 as they sold mostly in stock futures and extended buying support to index options. Overall futures & options (F&O) volumes at 278.79 lakh contracts, with a turnover of Rs 27,54,727 crore. Volumes in the F&O segment declined. Nifty February futures closed at a premium of 5.25 points versus a discount of 2.85 points.

On the options front, the volatility index decreased by 3.28 per cent to 22.25 from 21.54. Put-Call Ratio (PCR) of Nifty marginally rose to 1.19 from 1.12 indicating more Put writing. Similarly, PCR of volumes also edged up to 1 from 0.92.

"The Implied Volatility of Calls closed at 19.79 per cent, while that for Put options closed at 20.47 per cent. The Nifty VIX for the week closed at 21.54 per cent. PCR of OI for the week closed at 1.05 and this indicates more Put writing than Calls," remarked Bisht.

Bank Nifty

The NSE's banking index Bank Nifty closed at 35,841.60 points, a net fall of 267.30 points or 0.74 per cent from 36,108.90 points.

F&O Trading