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Despite Overpricing, Put Writing Shifting To Higher Strikes

Author: Dhirender Singh Bisht/Wednesday, November 11, 2020/Categories: Exclusive

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Despite Overpricing, Put Writing Shifting To Higher Strikes

After the US presidential election outcome, the domestic stock market is able to manage to breach the 12,000 level. Buying interest seen in the market in the last few sessions with constant option selling in puts. This week, the NSE Nifty also managed to cross 12,500 level after Covid vaccine news outbreak. The banking stocks led this rally and Bank Nifty surged by more than seven per cent whereas profit booking seen in IT and pharma stocks. In monthly contract calls, sellers are covering their positions on higher strike. The Put sellers are now shifting at a higher band and now fresh writing is seen in 12,400 and 12,500 levels, which will act as support for the market. As the market rallied, the India VIX cooled off and was trading around 21.5 level. In the upcoming week, the India VIX is expected to trade in a range. The Implied Volatility (IV) gap between Calls and Puts in a weekly contract is normal. The Calls and Puts are normal priced in the current scenario. In monthly expiry, the Puts are little bit over priced as compared to Calls, which will still attract the Put sellers to act in the market. The Nifty straddle for monthly expiry on Tuesday closed at 174 level near to the previous week, indicating that the option sellers are comfortable in the price movement of +/-174 from current level. These are the levels where the option sellers are comfortable on their sold position in straddle. The option max pain for Nifty current week expiry is at 12,500 whereas monthly is at 12,100. The option max pain for Bank Nifty current week expiry is at 28,000 whereas monthly is at 26,500. On the technical front, oscillators indicating the market is overbought. In the coming sessions the market is likely to trade in the range of 12,400 to 12,800 with upward biases. Stock-specific movement can be expected and buying interest in banking is going to be still intact.

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


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