F&O view: Key resistance for Nifty50 shifts to 7,700 level

NEW DELHI: The Nifty50 has plunged over 7 per cent so far in January alone, which has shifted the low point of the trading range from 8,000 to 7,700 level. Fresh Call writing was seen at strike price 7,700, which has taken the total OI to 67.52 lakh contracts, higher than the 61.57 lakh total Call OI at strike price 8,000.

The support for the market, too, has shifted to a lower strike price at 7,300 from 7,500. Total Put OI at strike price 7,300 stood at 64.96 lakh contracts, which was higher than 51.38 lakh total Put OI at strike price 7,500.

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“The immediate trend for the Nifty50 is negative, as it has broken the September lows with the crucial support level at 7,539. But it is trading in the oversold territory with many beaten-down stocks,” said Chandan Taparia, Derivatives & Technical Analyst - Equity Research at Anand Rathi Financial Services.

“Maximum Put open interest has shifted from strike price 7,500 to 7,300 while maximum Call open interest has shifted from 8,000 to 7,700, which indicates that the new trading range is shifting to 7,300-7,700 zone for the next few sessions,” he said.

Nifty50 January 2016 futures closed at 7,446.25 on Friday at a premium of 8.45 points over the spot closing of 7,437.80. It saw the addition of 0.26 million contracts, taking the total outstanding open interest to 22.63 million.

Analysts said to move higher and negate its immediate weak structure, the index has to cross its previous swing low of 7,539 to see a bounceback or relief move towards the 7,700 level.

If it sustains below the 7,500 level for long, the weak structure may drag it to the next Put writing support at 7,300 level, where total Put OI stands at 65 lakh contracts.

The India Volatility Index (VIX), a gauge of the market’s short-term expectation of volatility, increased by 4.35 per cent and reached 19.42.

“Nifty futures saw muted activity whereas bank Nifty futures saw minor short buildup, while India VIX inched above 19 per cent and closed with gain of 2bps W-o-W,” said Bhavin Desai, Head of Derivative Research, MOSL.

“Even though the index fell below the congestion area of 7500, Put writers have not shifted significantly. However, higher level of India VIX may keep intraday choppiness coming,” he added.

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Given the fact that the market is already trading at oversold levels, there are higher chances of a sharp bounceback. But, that should be used to short the index.

Going by options data, fresh Put unwinding was seen at strike prices 7,500 (8.09 lakh contracts shed) and 7,600 (2.98 lakh contracts shed).

Total Put OI stood at 64.96 lakh contracts at strike price 7,300 and 53.58 lakh contracts at strike price 7,400. “Traders are advised to keep a protective strike Put at 7,400 for any further downside in this bearish and volatile market scenario,” Taparia said.

“We would like to suggest any reversal trade only if it sustains above 7,539 level for a bounceback rally with a short-covering movement,” he said.

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F&O Trends:

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