F&O: Put writers run for cover; VIX nearing trendline breakout

Nifty opened negative on Monday and witnessed sustained selling pressure throughout the day till the end of session amid a major selloff in global bourses. The bears were active from the word go. As a result, Nifty continued to make lower lows as the day progressed and ended the session near to its lowest point.

The index formed a Bearish Marubozu candle on the daily chart, indicating complete dominance of the bears throughout the day. The index breached a major support at 11,900 level and closed below the 100 DEMA by declining 250 points intraday.

Going forward, the ongoing correction may continue and take Nifty towards its next support at 200 EMA, which is placed around 11,700 level, while the resistance shifted lower to the 12,000 – 12,050 zone.

On the options front, maximum Put open interest stood at 11,800 followed by 11,700 levels, while maximum Call OI was at 12,000 followed by 12,200 levels. There was seen significant Call writing at strike prices 11,900 to 12,200. On the other hand, Put writers at strike prices 12,000 and 12,100 were seen running for cover their shorts; while fresh Put writing was seen at 11,700 followed by 11,600 levels. Options data indicated a shift in trading range to the 11,700-12,100 zone.

India VIX moved up 24.07 per cent to 16.99 level. It was in the verge of seeing a trendline breakout. If it moves above the 18-18.50 zone, then we may see further volatility in the market.

Bank Nifty opened with a downside gap and remained in the negative territory throughout the day. It relatively fell less compared with the benchmark index, but corrected 1.58 per cent and formed a bearish candle on the daily chart.

Momentum oscillator RSI turned southward and showed some weakness in the index. Since the banking index breached its major support at 30,600 level, the ongoing correction may extend towards 30,250 and then 30,000 levels. Nifty’s resistance shifted lower to 30,700 and then 31,000 levels.

Nifty futures closed negative at 11,832 with a loss of 2.04 per cent. Long buildup was seen in MFSL, Muthoot Finance and YES Bank while shorts were seen in Aurobindo Pharma, Jindal Steel, JSW Steel, Motherson Sumi and Vedanta.

(Chandan Taparia is Technical & Derivative Analyst at MOFSL. Investors are advised to consult financial advisers before taking an investment calls based on these observations)