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Put Writers Turning Active Amid Uncertainty

Author: Dhirender Singh Bisht/Wednesday, October 28, 2020/Categories: Exclusive

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Put Writers Turning Active Amid Uncertainty

Again the market took resistance at 12,000 points and corrected. As suggested earlier, the market is trading in wide range of 12,000 to 11,700 strikes. The banking stocks showed some strength after Kotak Bank released its financial numbers whereas IT stocks are under pressure. The Call writers in Nifty are active at 12,000 with highest concentration of Open Interest (OI), whereas on the other hand Put writers are active at 11,700 and 11,800 in current monthly expiry. The India VIX is trading near to its recent resistance, which indicates that if there is any breakout happens in the VIX, then we can see some correction as there is a high inverse correlation between volatility and its underlying. 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. The rise in volatility depicts the fear among the market players whenever the fear is high then there is a rise in volatility and vice versa. The Implied Volatility (IV) gap between Calls and Puts is now increasing. The Puts are little bit overpriced as compare to the normal scenario. It indicates that Put writers can write options in coming sessions. Another possibility of charging high premium is that there is a rise in the volatility as market is hitting lower level again and again in last few sessions, which create a fear among the Put sellers.

The Nifty straddle for monthly expiry on Tuesday closed at 151 level near to the previous week. It indicates that the option sellers are comfortable in the price movement of +/-151 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 in monthly expiry is at 11,800 whereas for the Bank Nifty, the option max pain is at 24,300. On technical front, the Bollinger band in 60 min Nifty chart also indicating resistance at 12,000 at 2 standard deviation. In coming sessions market is likely to trade in the range of 12,000 to 11,700 with a wide movement in intraday. Overall, stock-specific movements can be expected.

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

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