Wider trading range likely as resistance level moves up

The resistance and support levels (15,000CE and 14,000PE) remained at same strikes for five weeks in a row until March 1, 2021. However, last week futures and options (F&O) trading witnessed resistance level moved up by 1,000 points as the highest concentration of Open Interest (OI) was seen at 16,000CE, while the 14,000PE strike indicates the same support level for the sixth consecutive week.

The Call OI is seen at 16,000 strike followed by 15,800 strike, 15,600 strike and 15,300 strike. Highest Call OI addition was seen at 15,500/16,000/15,000/15,800 strikes. The 14,000 strike has the highest Put OI base followed by 14,500 strike, 15,000 strike and 15,500 strike. The highest build-up of Put OI was at 14,500 /13,500 /14,200 strikes.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, Put writers at 15,000 strike are seen unwinding their positions, while Call writers added hefty Open Interest in 15,000 & 15,100 strikes. For upcoming sessions, we believe that tug of war among bulls and bears will likely to keep markets on volatile ground and bias is likely to remain in favour of bears as far Nifty is holding below 15,100 levels."

As the NSE broad-based Nifty closed below 15,000 level, more writing was seen at 15,300 Call strike. On the Put side, the 14,500 followed by 14,700 strikes saw a good addition of OI. Considering the higher IVs and writing in OTM strike Calls and Puts, derivatives analysts predict consolidation for the NSE Nifty with support at 14,700 strike. For the current week, analysts suggest a short strangle strategy for the Nifty by selling 14,700 Put & 15,300 Call to capitalise on declining time value and retracement in IVs. Indicating the recent highest volume, the Nifty saw 20 per cent OI block on the weekly expiry day (Thursday). Stuck up long positions could limit upsides as traders would look for exit if the Nifty moved above Thursday's high of 15,250 strike.

"It was quite a volatile week for Indian markets as tug of war among bulls and bears kept markets on a roller coaster ride. The Nifty index, however, closed below the key psychological level of 15,000 as profit booking in the metal counter along with financials and pharma space kept markets under pressure in later part of the week," remarked Bisht.

For the week ended March 5, 2021, BSE Sensex closed at 50,405.32 points, a net recovery of 1,305.33 points or 2.65 per cent, as against 49,099.99 points. NSE Nifty gained 408.95 points or 2.81 per cent and closed at 14,938.10 points from 14,529.15 points. Bisht forecasts: "On downside, the 14,800 level would act as immediate support for Nifty below which further selling pressure can mount and can drag Nifty towards 14,600 level as well."

Volatility during the last week remained high for the NSE Nifty. After easing earlier, the volatility index VIX again gained momentum and moved towards 26 level, whereas the rupee depreciated almost 30 paise on Friday. This situation may result in negative sentiments limiting the upside movement, while triggering selling at higher levels.

"The Implied Volatility of Calls closed at 23.58 per cent, while that for Put options closed at 25.12 per cent. The Nifty VIX for the week closed at 24.15 per cent. Put-Call Ratio of OI for Nifty closed at 1.74 and it indicates more Put writing than Calls," adds Bisht.

FII trading in the F&O space improved during the last week. The FIIs sold Rs1,289 crore in the index futures segment and bought to the tune of Rs1,932 crore in the stock futures segment and Rs1,608 crore worth index options as well.

Bank Nifty

The NSE's banking index Bank Nifty closed at 35,228.15 points, a net gain of 424.55 points or 1.21 per cent from 34,803.60 points. The second wave of Covid pandemic is casting a shadow over Dalal Street. The Bank Nifty reverted from 36,600 points, after which fresh short OI blocks took place. This may create selling pressure in the current week.

According to ICICI Direct.com data, the Bank Nifty has the highest Put base at 35,000 below which another 1,000 points fall is expected. However, looking at the Call writing positions in OTM strikes, analysts forecast that 36,500 level may act as a hurdle and fresh long could only be seen if the index manages to close above 36500 points.

The current price ratio of Bank Nifty-Nifty fell to 2.36 and it may move towards 2.32, while the ongoing underperformance in the Bank Nifty could continue, according to ICICI Direct.com.

F&O Trading