Overall options data depicts a relatively lower Put accumulation versus Calls that could keep upside limited and risk on downside remains open
Shubham Agarwal
The Nifty started the week with gyration near 10,900. However, the selling pressure accelerated towards the end of the week as Nifty fell 1.29 percent and the Bank Nifty slipped 1.47 percent.
Media, auto, metals were the top contributor to the fall, on the other hand, positive momentum was seen in IT and pharma stocks that provided support to the market.
A sharp sell-off was seen in stocks like Zee Entertainment, Sun TV, Maruti Suzuki, UltraTech Cement, Grasim, etc. with fresh built-up of shorts.
With Union Budget scheduled this week, volatility spiked in the market as traders hedged their positions ahead of the event.
India VIX, a barometer of fear and greed, spiked during the week to 18 mainly due to a rise in margin requirement along with hedging by institutional investors. A continued rally in India VIX could put downward pressure in the market.
The Nifty options data during the week saw a sharp unwinding by Put writers across strikes from 10,900-10,500 and Call writers aggressively shifted lower to 10,900 with OI addition of 15 lakh shares.
Overall options data depicts a relatively lower Put accumulation versus Calls that could keep upside limited and risk on downside remains open.
Bank Nifty saw unwinding of longs by about 5 percent. Both PSU and Private bank saw a fresh round of selling emerging from a higher level. A downward shift in the option band along with rising volatility points at possible acceleration in selling pressure.
Option data shows the highest accumulation at 27,500 Call whereas Put writers remain spread out at 27,000-26,500 strikes. A sharp sell-off in the last two days of the week saw aggressive writing at 27,200-27,400 strike whereas Call writers were active at 26,800 shifting base to 26,800-27,200 level.
Hence, low-risk Bear Put spread is recommended for Nifty Bank. A Bear Put Spread is a bearish strategy where we buy 1 lot of Put, and Sell 1 lot of lower strike Put.
Maximum profit is at or below lower strike Put with the difference between strikes less net outflow paid. Maximum Loss is restricted to net outflow. Considering heightened volatility low-risk bear spread is recommended.
The author is CEO & Head of Research at Quantsapp Private Limited.
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