NEW DELHI: The Nifty50, which managed to reclaim its psychological level 0f 7,800-7,850 this past week, will be watched keenly as volatility is expected to increase ahead of the expiry of November futures & options contracts due on Thursday, November 26.
Experts say the 7,800 level will be a key support for the index in case the market starts moving southward, with the maximum concentration of put open interest (OI) at 45.58 lakh contracts. In case it breaches 7,800, then 7,700 level will be a crucial support for the index.
Open interest is the total number of outstanding contracts that are held by market participants at the end of each day.
Call unwinding was seen at strikes 8,200 (shed 11.73 lakh contracts) and 8,300 (shed 13.02 lakh contracts), which means participants expect the market to trade with a negative bias. The concentration of Call OI at strike prices 7,900 and 8,000 would keep the upside limited.
The market is likely to remain volatile during the expiry week. The Nifty November futures saw a closing at 7,851, with weekly gains of 76.70 points.
The maximum open interest concentration for the put option is seen at strike price 7,700 with a base of 61 lakh contracts, followed by strike price 7,800 (OI 45.58 lakh contracts). For calls, it’s seen at strike price 8,000 with 63 lakh contracts, followed by strike price 8,200 (61.67 lakh contracts). The highest call open interest acts as resistance level for the index, while highest put open interest acts as support.
“If Nifty50 falls below the 7,800 mark, it can slide further to 7,700 level on further selling. On the upside, the index will face strong resistance at 7,950-8,000 levels,” SMC Capital said in a report.
“The put-call ratio of open interest closed higher at 0.81 level, indicating OTM (out-of-the-money) put writing. The call options open interest concentration continued to be at strike price 8,000 with the highest open interest of above 70 lakh contracts. Among put options, strike price 7,700 has a total open interest to 63 lakh contracts,” the report said.
The brokerage firm said the VIX has moved down to 15.84 per cent from 17.88 per cent. Nifty50 is expected to trade in the 7,700-7,900 range of till the expiry.
The decline in the volatility index suggests Nifty50 is unlikely to see any sharp fall in the market. The volatility index is a measure of traders’ expectations of near-term risks in the market.
VIX could have also fallen on expectations that the Nifty50 will not fall sharply below 7,800-7,700 levels, where heavy put concentration is seen.
The implied volatility (IV) of call options moved down to 15.84 per cent, while the average IV of put options closed at 15.94 per cent. A fall in implied volatility bring down premiums and vice versa.
Price rise with rise in open interest suggests long buildup. Here is a list of top stocks where long positions are building up.
A fall in price with rise in open interest suggests short buildup. Here is a list of top ten stocks where short positions are building up.