India VIX could go up to 22-23 levels soon: ICICI Direct

Amit Gupta of ICICI Direct joins CNBC-TV18 to discuss the scene at the futures and options market today. Speaking to the channel, he says that there could be some panic creeping into the market over the next two to three sessions. Volatility is very high and India's volatility index (VIX) is not at levels of 19. "There is, in fact, a possibility of the VIX moving up to 22-23 levels, and that gives more headroom for the market to trade," he says.

Below is the edited transcript of his interview. Also watch the accompanying videos. Q: How heavy is the market in terms of positions around 5,400. If it were to break, how much pressure do you think we would see on the Nifty? A: If you look at the subdued volatility in the market, the occurrences of events, whether it is on the domestic or the international front, this sort of downside had to happen. It started at 5,600 put option, then in the last week of the previous expiry we broke this level of one of the highest open interest base, from there, it has been a continuous fall. The major support levels are taken out, whether it is 200-day moving average or 50-day moving average or 5,520 and then 5,450 in the last session. If you look at VIX, 16.5 is a very critical level. And, in the last six or seven months, whenever it has touched this level, we have seen a very sharp bounce where towards 22-23 levels. Now it has started moving above this. In the past two to three sessions, it closed somewhere around 19 points and today it will be somewhere around 20 points. There is still some headroom for it to go towards 22-23 levels. In that scenario, for another couple of sessions, more panic is seen creeping in. Another important chapter to watch out is 5,400 put base, which was in the process of seeing further increase of open interest. We have seen that wherever there is a huge build-up in one, the strike market has a tendency to break that level. But still, it was only 6-6.5 million shares in 5,400 put base. It didn't increase to 80 lakh shares or one crore shares. So once this level is taken out, you look at the previous two falls below 5,400, we had seen that within three to four sessions, we had recovered above 5,400, whether it was a panic towards 5,177 or 5,200. If the supports elongates beyond six to seven  days, then it is possible that we are in a different scenario which was not seen in the previous falls. Otherwise, panic maybe created below 5,400. It could be around 5,300 or 5,250, and then finally, the market could try to revert back. On the higher side, at 5,500 and 5,600, call open interest increased continuously and we have seen 5,550 remains a major hurdle on the upside. So it is possible that the market may remain subdued even if it is bounces above 5,400 in next three to four days. We should not expect a very sharp bounce and it is possible that this particular series may remain in range-bound to bearish bias mode, below 5,550. In the last series, we hovered around below 5,650. So I think in that scenario one can initiate short bigger kind of strategies, once India VIX goes towards 22-23 levels. It's a proper F&O sort of market where, once the volumes are down, you should go long in the volume and once the volumes are high, you should go short in it. In this way, you can trade this market. Q: We may probably start the day around 5,400 if we were short on the market last couple of days, would you cover your shorts here? A: I will still carry my short positions till 5,450 is not taken out again. I think that was a critical level; the previous low market made and finally took out this level. I will also watch out the 5,500 call option base like the way 5,600 call option increase and the kind of increase we have seen in 5,500 call yesterday. If that starts happening and the puts are seeing a close of positions, then obviously, once the market starts moving up, I will utilize those upsides to go short again. As I mentioned before, India VIX is moving higher. So if another 1-2% upside is there in the volatility index, it is possible that underlying will remain under pressure at least in the coming two to three sessions.