After taking a resistance at 12,000 level, the NSE Nifty took a dip and bounced back. Banking stocks are in focus and seen buying interest whereas pharam stocks are under pressure and continue to show weakness. Call writers are more aggressive than Put writers in current week and monthly expiry. The 12,000 strike Call and 12,500 strike Call seen a good writing as compared to other strikes, whereas on Put side, Put writers are more active at 11,500 strike. The VIX is trading in its upper range around 22.69, which indicates a sign of rise in volatility. The Implied Volatility (IV) gap between Calls and Puts is normal, which indicates that option writers can write either side options or both side. If there is any rise in volatility in coming session then chance of fall in the market is quite high as there is a high inverse correlation between volatility and index. The inverse correlation means that when volatility rises then chances are high that market will record a fall whereas on the other side if volatility takes a dip then the market will take a bounce.
Nifty on Tuesday (October 20) closed at 11,896.80 points, up by 0.2 per cent, and Bank Nifty at 24,311.80 points, a net rise of 0.19 per cent. The Nifty straddle (Oct 22 expiry) on Tuesday closed at 160 level near to the previous week, indicates that the option seller are comfortable in the price movement of +/-160 from current level. These are the levels where the option sellers are comfortable on their sold position in straddle. The option pain for Nifty in current week is at 11,900 level whereas for monthly is at 11,700. The option pain for Bank Nifty in current week and next week is at 24,000 level whereas for monthly is at 23,500. Going forward the market is likely to take support around 11,700-11,650 zone and on upside 12,000 will act as resistance. There is an early sign of rising in volatility in coming week. The stock-specific movement can be expected with wide range.
The writer is a senior research analyst (derivatives) at SMC Global Securities Ltd