Falling volatility with rising Put Call ratio and open interest congestion suggests upside in Nifty

Falling volatility with rising Put Call ratio and open interest congestion suggests upside in Nifty

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Chandan Taparia

The Nifty managed to to hold immediate support of 10,950 levels and witnessed strong recovery from lower levels to head towards 11,085 levels. It formed a Bullish Engulfing pattern on the daily scale, while forming a bullish candle on the weekly scale and held above its falling supply trend line which indicates more pullback after the recent short-term bottom formation.

The Nifty managed to to hold immediate support of 10,950 levels and witnessed strong recovery from lower levels to head towards 11,085 levels.

It recently witnessed a recovery of 330 points from 10,750 to 11,080 levels in the last six trading sessions but needs to get follow up buying interest above its multiple hurdle of 11,111 and 11,141 levels to witness bullish momentum, else it may again stuck in broader trading range.

Now, Nifty needs to hold above 11,000 levels to witness a move towards next major hurdle of 11,141 then 11,200 and 11,333 levels while on the downside support exists at 10,950 then 10,880 levels. A decisive close above 11,141 could confirm the recent bottom process for next leg of upside move in the market.

India VIX fell by 13.21 percent in the last week from 16.27 to 14.12 levels. Volatility has been falling from recent swing of 18.31 to 13.90 levels in last seven sessions and forming lower highs on daily scale. VIX suggests some sort of stability and respect of support zones in the broader market.

On the options front, maximum Put open interest is at 10,800 followed by 11,000 strike while maximum Call open interest is at 11,200 followed by 11,300 strike. We have seen Call and Put writing at immediate strikes which suggests a limited upside as well as downside in the market but a short term stability and respect of support zones.

Falling volatility with rising Put Call ratio and open interest congestion suggests shifts of support to higher zones and chance of surpassing the key multiple hurdle areas.

Bank Nifty managed to hold 27,500 levels and witnessed strong recovery towards 28,100 levels. It continued the formation of higher highs for fifth consecutive sessions and holding above its falling supply trendline by connecting swing highs of 31,660, 30,769, 28,277 and 27,500 levels. Now, it needs to hold above 27,750 levels to extend its move towards 28,350-28,500 levels, while on the downside, support exists at 27,750 then 27,500 levels.

Sector-wise positive price setup or bottom out formation was seen in many auto, private bank, cement and oil marketing companies. Stock-wise positive price setup was seen in ICICI Bank, IndusInd Bank, Titan, BPCL, Hindalco, ACC, Hero MotoCorp etc.

In Nifty, one can go for Bull Call Spread or Call Ladder Spread to play the positive to bounce back move of the market after the recent follow up action and support based buying interest.

(The author is Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited.)

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