The Nifty October series rollover currently stands at 62.96% while the open interest-wise put-call ratio (PCR) stands at 0.56 for October monthly series, which indicates a flat-to-bearish bias for the monthly expiry, Shah said.
“We recommend a bearish strategy called ‘Bear Put’ spread with an expectation of increased volatility along with continued weakness for the monthly expiry. The spread is constructed by purchasing one lot of a 19,100 Put option and writing one lot of a 19,000 Put option against the buy strike, having premiums of Rs 42 and Rs 19, respectively, with a total premium outflow of Rs 1,150 (23 points),” Shah said.
The strategy could theoretically generate a profit of Rs 3,850 while the loss will be restricted to the premium paid as it is a debit spread, Shah reasoned. He put the stop loss at 19,180 in spot levels.
Nifty has corrected by 516 points or 2.6% in the October series as on Wednesday. In the 50-stock index, 84% of its constituents are trading below their 20-day EMA levels while 68% of stocks have breached their 50-day EMA levels.
Nifty settling at 19,122 on Wednesday has brought it below its prior swing low of 19,223 formed on August 31, Shah said, suggesting a short build-up with the cumulative open interest (OI) of current, next and far series surging by over 4%.
The trading range for today’s session is between 19,300 and 19,000, the SBI Securities analyst said. Nifty has the highest OI at 19,200 strike followed by 19,300 which will act as key resistance levels on the call side while on the Put side, the highest OI is at 19,100 strike price followed by 19,000 and will act as crucial support levels, Shah said.
“Any sustainable move below the psychological level of 19,000 will lead to further selling pressure in the index and will likely open a downside up to 18,850 in the short term. Meanwhile, 19,180-19230 will act as an immediate hurdle for the index,” Shah added.
Meanwhile, Bank Nifty has slipped below the 200-day EMA level for the first time after the last week of March 2023. The 12-share index slid below the psychological 43,000 mark.
“The cumulative OI of the current, next and far series has dipped by nearly 2%, which indicates overall long unwinding. The October series rollover stands at 55.14%,” Shah said.
Bank Nifty futures have the highest OI at 43,000 strike followed by 43,300 on the Call side, while the highest OI is at 42,800 strike followed by 42,500. This indicates that 42,550-42,500 could be a crucial support level and if 42,500 is breached, a downside will open up to 42,240, Shah said. On the upside, 43,250-43,300 will act as an immediate hurdle for the index.
Om Mehra, Technical Analyst at SAMCO Securities sees Indian market steadily slipping into a bearish trap. Commenting on the recent lackluster trade, he said that the ongoing September quarter earnings have left investors disheartened, triggering subdued participation. Retail participants’ selling spree in mid and smallcaps have also caused short-to-medium-term concerns.
Shah’s 7 takeaways from Options data:
1) Implied volatility of Nifty ATM (at the money) strikes for the October series is around 13.70%, which is highest in the last couple of trading sessions.
2) Though India VIX has jumped 28% from Monday’s lows of 8.82, it is still trading in a narrow range and any sustainable move above the level of 13 will lead to a sharp uptick in volatility thereby putting more pressure on Nifty.
3) Shah also highlighted short build-up or long unwinding in the stocks from power and telecom space. Moreover, over 80% of stocks from oil & gas, pharma, chemical, realty and infrastructure space have either witnessed short build-up or long unwinding.
4) 80% of stocks from the metal space have either witnessed a long build up or short covering rally.
5) Until Nifty sustains above 19,500, any rally should be considered as a pullback. As the major indicator RSI has not yet reached an oversold condition, Nifty is expected to see some more declines in the coming days.
6) Formation of the first lower top and lower bottom on a daily scale. In the last 25 trading sessions, Nifty futures have added 9 distribution days. The distribution day forms when the index future loses more than 0.2% along with a relatively higher volume as compared to the prior day.
7) F&O stocks viz. Persistent Systems and Balkrishna Industries have seen significant long build up while, Bharat Forge, Manappuram Finance, Adani Enterprises, Tata Communications, Chola Finance, The Indian Hotels Company have seen significant short build up.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)