Volatility may cool off in next few sessions

Most of the market volatility indicators like average true range & standard deviations are trading too far from their mean. Hence, volatility is expected to cool off in coming trading sessions, as we have seen a sudden rise in implied volatility (IV) and it’s likely to revert to its mean.

The (IV) of call options closed at 31.64% on Tuesday, while the average IV of put options ended at 32.89%. Higher IV of put indicates more buying interest in put option and call writing in higher strikes. Nifty VIX also rose and closed at 34.52% on Tuesday.

It’s expected to fall or consolidate around these levels. This indicates range-bound trading for the next 2-3 trading sessions with slightly higher range. The put-call ratio of open interest decreased and finally closed at 0.85 levels. The options open interest witnessed a strong addition in higher strikes call options on the short side.

The options open interest concentration for the May series continued to be in the 4800 strike put, with the highest open interest of above 76 lakh. We are seeing maximum put OI at ATM strikes, indicating an expiry below 4800. Nifty 5100-strike June call has maximum open interest of above 26 lakh shares signifying that the level is the resistance.



Till date, we have seen the Nifty rollover of 40%, but data are indicating towards short-side rollover. The Nifty is continuously trading below 200-day moving average, which is around the 4990 level. And on the technical chart, we are moving with lower-top-lower bottom formation, which is a bearish signal. The index may find an intermediate support around 4750 levels and a round of short-covering from that level can not be ruled out.

Nitin Murarka, Head, derivative strategy, SMC Global