Expect more volatility in Nifty, say F&O experts; heavy put writing at 23,700 strike

Stock market trend

Short covering helped Nifty pare some intra-day losses, but the mood has turned nervous, according to futures and options traders.

Majority of the sectoral indices stayed in the red, with Media, PSU Banks, and Oil & Gas joining Metals and Realty in losses exceeding 4.5 percent.

Nifty's open interest (OI) put call ratio has plummeted to 0.48, which means more call options are being written. Call options are written by traders who do not expect the market to rise. While this shows that a lot of call options are being bought, option writers' judgment is given more credence as they stand to lose much more if the market moves against them.

The India Volatility Index surged 50.84 percent to 21.6 levels, the highest in nine years, indicating a high level of fear and uncertainty among traders.

Option premiums too have shot up sharply, as option writers are demanding higher compensation for taking on increased risk.

"The major jump in options premiums is due to the unwinding of puts in weekly and monthly expiries. Strikes below 25,000, which were written last week, have seen significant unwinding following today’s surprise gap down," said Akshay Bhagwat, Vice President of Derivative Research at JM Financial.

Arun Mantri, Founder of Mantri Finmart, said: "Nifty is expected to trade with volatility following the recent sell-off, and further pressure cannot be ruled out based on recent price action. Overall market sentiment remains cautious, with participants staying on the sidelines after significant declines in the past few sessions."

Options Positioning:

On the options front, Sudeep Shah, Head of Derivative and Technical Research at SBI Securities, stated, "The 24,000 and 24,250 strikes have seen high OI buildup, while heavy put writing was observed at the 23,900 and 23,700 strikes."

Levels to Watch:

Shah highlighted that if the Nifty persists below its day low, the 23,750-23,800 zone, which aligns with the 50 day moving average, is likely to be the next support, followed by 23,550.

Also read: India VIX soars amid global market crash; traders rush to buy options, Nifty call build up at 25,500

On the technical front, Mantri expects the market to remain in a consolidation phase over the next few days, with support around 23,550-23,600 and major resistance at 24,300-24,350. Aggressive traders might consider buying around 23,700-23,750, which is expected to act as strong support, with 23,500 as the lower boundary.

The rise in India VIX remains a major concern, as global tensions peak, keeping short-term traders busy. Risks should be managed closely, given the potential for intensified global market sell-offs, market experts warned.

Bank Nifty Outlook:

Mantri expects the Bank Nifty to outperform the Nifty in the coming sessions. "The index is currently trading near the 100 EMA at 49,840, with immediate support at 49,200-49,300. Aggressive traders may look to enter around 49,500, which could act as a good support zone, with a stop loss below 49,200," he added.

Sectors to Watch:

Mantri anticipates that Oil & Gas, Pharma, and FMCG sectors will outperform in the upcoming days, while Metals and Autos are expected to underperform.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.