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Reversal expected in Indices as Put premiums failed to appreciate…

ICICI Securities 02 Mar 2022

Commentary:

Uncertainty has triggered sharp volatility in recent days where Nifty is witnessing a move of over 200 points daily. Stock specific actions continued where metal, gas and power related stocks remained in focus whereas supportive action are intact in other heavyweights.

Major Option activity (main expiry):

Major Call OI change in today’s session: 16500 (6.2 lakh), 16600 (23.7 lakh) and 16700 (15.8 lakh)

Major Put OI change in today’s session: 16600 (22.9 lakh) and 16500 (16.7 lakh).

Outlook:

The Nifty started the week on an optimistic note but due to global uncertainty and taking cues from global indices it opened gap down today. However, since morning there was good OI blocks in Puts. Despite a sharp sell-off and huge additions in Puts, premiums failed to move higher. OTM Puts premiums declined almost 30-35% since morning trades. Even volatility benchmark index – India VIX failed to move higher and is up by only 3%. We feel there will be limited downside in today’s session from here and sizeable Put OI of 16500 remain important support zone. The only issue is banking stocks are not performing and since few sessions it has relatively under performed. Once the covering start in the banking space, Nifty would be able to surpass 16800 levels. However, a move towards 16800 cannot be ruled out in couple of sessions. Hence, we advise avoiding any aggressive shorts at current levels and remaining long for upside target of 16800.

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