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Volatility in contraction phase suggesting consolidation at current levels

Commentary

After making a high near 17650, the Nifty gave up its gains and moved towards its highest Put base for the coming weekly expiry. Heavyweights like Bharti Airtel, Reliance Industries, Bajaj twins and HDFC group stocks contributed to the fall.

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:

Despite the recent fall in broader indices, the volatility index, India VIX, remained muted with no sharp rise being seen before the Fed policy meet. This indicates that IVs are in contraction phase, which should help the strangle writers. For instance, short Strangle of Nifty 17300 Put and 17700 Call is still near its last week’s close of 110 even when the Nifty tested both levels. For the coming weekly expiry, we feel the Nifty has a strong support at 17200. With this as support the Nifty should move towards 17350-17400 on upsides. Bank Nifty future is sustaining above 37000 levels and for a few sessions outperforming the Nifty. Few banking components like Axis Bank, IndusInd bank and SBI are likely to perform better than their peers. Hence, outperformance in the Bank Nifty is likely to continue.