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Put Writers Covering Short Positions

Author: Dhirender Singh Bisht/Wednesday, February 17, 2021/Categories: Exclusive

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Put Writers Covering Short Positions

The index is in uptrend and trading near all-time high. The last week’s rally wasled by banking and financial stocks whereas media and IT were laggards. In Nifty weekly contract, Call writing observed at 15,400 and above strikes, whereas on Put side, the put writers are not aggressive and on lower strikes and they are covering their positions in Puts. The highest Open Interest (OI) concentration band in monthly expiry is at 15,000-15,500 where highest Put Open Interest stand at 15,000 strike whereas on Call side highest Call Open Interest stand at 15,500 strike. Due to a sharp rally in Bank Nifty, weekly expiryhighest Open Interest in Calls stands at 38,000 whereas on Put side the highest Open Interest is at 36,000 strike. The VIX is cooling off and trading around 21-22range as market is moving upwards. The VIX is trading in 26-16 range for along time as an option writer the high volatility means high price which willdiscourage the option buyers and let the market volume to get thin. So, as anoption writer (strong hands) always need the opposite side participant to fillthe order in this case option buyers who are not interested to buy option athigh price. 
As the underlying approaches upward level, we can expect lowvolatility by this prospective, also as per option pricing model eitherunderlying should be less or volatility should be less for low premium ofoption so that option buyer should participate more. The Implied Volatility (IV) gap between Calls and Puts in weekly contract is little bit wider. The Call sellersare asking a high Implied Volatility as compare to the Put writers which willattract the Call writers in the market. The Nifty straddle for monthly expiry onTuesday closed at 156 lower as compare to last week that implies the optionwriters are comfortable at +/-156 points movement in coming sessions. The Bank Nifty straddle for current week is at 680. The option max pain for Niftycurrent week contract is at 15,300 and for Bank Nifty current week contract isat 37,000strike, which is near to the current level of index. In coming sessions indexis likely to trade in the range of 15,100 to 15,500. Further profit booking can beexpected once it breaches 15,100. In coming session, cement stocks areexpected to outperform as buying interest seen in these stock at this level.

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


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