As the week gone by, the NSE Nifty has been consolidating at higher range. Last week, Nifty tested 12,800 support and bounced back. Put writers are aggressive at 13,000 strike, whereas Call writers are active at 13,400 strike. The metal and banking stocks are showing strength, whereas weakness was seen in IT and auto stocks. The Implied Volatility (IV) for Calls and Puts rose as compared to the last week and trading high whereas the gap between the Call IV and Put IV shrinking. The difference between the Implied Volatility in At The Money (ATM) Call and At The Money (ATM) Put is around 1-3 per cent, which is a normal scenario for the derivatives market. The same Implied Volatility charged by the Call and Put option sellers indicate the uncertainty regarding the direction of the market whereas aggressive Put writing at 13,000 indicated that market will take support on fall. From almost last 5- month India VIX is majorly trading in range of 24 to 18. Some volatility spike can be expected ahead of monetary policy and supposed to be settled down post event. The Nifty weekly option max pain is at 13,000 and monthly option max pain is at 12,800. The Bank Nifty weekly option max pain is at 29,600 and monthly option max pain is at 29,000.
The continuous upward shifting on option max pain level indicated that bulls are having a grip over bears. Weekly straddle is trading around 175, which is higher than the previous week indicates that the option writers are comfortable at +/-175 points movement in coming sessions. The Index is likely to trade in the range of 13,350 on upside and 13,000 points on downside in upcoming sessions as it is also a psychological level. Every dip in market can be considered as a buying opportunity and stock-specific movement can be expected with wide ranges ahead of monetary policy.
The writer is a senior research analyst (derivatives) at SMC Global Securities Ltd