ATM Straddle writing suggesting consolidation in expiry week

Commentary:

A sharp recovery from 16500 was seen last week where the technology space followed by select metals and leaders like L&T, Reliance Industries and HDFC group did well. The volatility index remained subdued despite sharp selling, which should be considered positive.

Major Option activity (Weekly):

Major Call OI change in today’s session: 17300 (40.1 lakh), 17400 (23.52 lakh) and 17500 (20.8 lakh).

Major Put OI change in today’s session: 17200 (16.2 lakh) and 17100 (12.7 lakh).

Outlook:

The Nifty recouped most of its losses last week and managed to test its Call base of 17000. Despite sharp reversal, almost 90 lakh shares are open in 17000 strike Straddle. Such high OI in ATM Straddle and no major spike in IVs is suggesting consolidation in the expiry week. FIIs, which remained net negative for the December series in the cash segment, have reduced their selling quantum in the Christmas week. We feel that on the back of lack of participation by FIIs there will not be any major moves in the expiry week. December series VWAP is marginally below 17200 levels whereas major Put writing for the main expiry is at 16700 strike. Hence, we feel the Nifty is likely to trade in a broader range of 16700-17200 in the expiry week