Market could have a shy at 11,000, pre-Budget

The Nifty could test the 11,000-mark before the Budget on February 1, analysts say citing near-month derivatives data. The 11000 mark is around 3% from Friday’s closing of 10,681. Markets are gung-ho about the rally extending based on the Nifty open interest (OI) put call ratio, currently at an over seven-year high.

The PCR data measures outstanding number of traders’ put positions relative to open call positions. The Nifty’s PCR is around 1.75. This means for every 100 calls outstanding (purchased-sold), traders hold 175 puts outstanding.

Such figures are seldom seen.


The important aspect to consider here is that the buyer of an option faces limited risk – that of losing his premium — unlike the seller, who bears unlimited mark-to-market (MTM) risk writing a call or put. The option seller tends to be more market savvy than an option buyer. Thus, his selling puts at this juncture is seen by analysts to mean continued upside.

“Global markets are on an uptrend and fund flows into Indian equities continue unabated through domestic mutual funds,” said Amit Gupta, derivatives head, ICICI Securities. “The high PCR appears to indicate that odds of the rally extending to 11k are stronger than markets correcting sharply from here.”

Indeed, the 11000 call has the highest OI – 47.31 lakh shares -- among all call strikes in the current series (Jan 25 expiry). For now, this is the point of maximum resistance. The support, going by options data, lies at 10500, which has highest OI of 81.53 lakh shares.

“I don’t see any reason for a correction so far,” said Rajesh Baheti, director of jobbing and arbitraging firm, Crosseas Capital. “My take is that given the positivity in global markets and heavy fund flows into Indian stocks, the rally would continue.”