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Call Writers Turn More Aggressive

Author: Dhirender Singh Bisht/Wednesday, January 27, 2021/Categories: Exclusive

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Call Writers Turn More Aggressive

As the market bellwether BSE Sensex kisses the 50K mark, the market witnessed a sharp selloff. Profit booking was seen across the board and FIIs are not comfortable to hold their position at this level. Ahead of Union Budget of India, some uncertainty also plays a trigger for profit booking. Banking and energy sectors were weak against the market whereas IT and pharma show some strength. In monthly contract, Call writers are active above 14,400 strike and adding Open Interest (OI) aggressively whereas on other hand, Put writers are not active due to current selloff in the market. Even in weekly expiry, the Call writers are more aggressive than Put writers and it indicates that the market is in grip of bears. The highest Call concentration is at 14,500 strike whereas in Put side is at 14,000 strike. The India VIX bounces back and was trading around 23-25 level due to the selloff in the market. The VIX is trading in a range for long time and 26 is a crucial level as it acts as resistance for long time. The traders should keep a check on this level as once it breaches then we can expect a good selloff in the market. The Implied Volatility (IV) gap between Calls and Puts in weekly contract is wide. The Call sellers are asking a very high Implied Volatility due to upcoming event as compared to the Puts, which will attract the Call sellers to write more calls in this expiry. The Nifty straddle for monthly expiry on Tuesday closed at 187 higher as compare to last week. The option max pain for Nifty monthly contract is at 14,300 and Nifty already trading below this level. The option max pain for Bank Nifty monthly contract is at 31,400 points. In coming sessions, the index is likely to trade in the range of 14,000 to 14,400. A sharp selloff can be expected if Nifty fails to hold 14,000 level in the market.

The writer is a senior research analyst (derivatives) at SMC Global Securities Ltd

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