F&O: Spike in volatility causing profit-taking decline

Nifty opened positive on Tuesday, but failed to surpass immediate hurdle at 15,900 level and drifted towards 15,700 level. It remained consolidative in the first few hours of the session, but then witnessed a sharp selloff by falling below its previous day’s low and closed the day with a loss of around 80 points. However, it witnessed some recovery in the last hour, but formed a bearish candle on the daily scale and wiped out all the gains of last three sessions. Now, it has to hold above 15,750 level to witness a bounce towards 15,900 and 15,962 levels while on the downside support exists at 15,700 and 15,600 levels.

India VIX moved up 6.29 per cent from 12.45 to 13.23 level. A spike in volatility since last two sessions is giving profit booking decline, but overall lower volatility indicates that buying interest could emerge again at meaningful support zones.

On the options front, maximum Put Open Interest stood at 15,000 followed by 15,700 levels, while maximum Call OI was seen at 15,800 followed by 15,900 levels. Call writing was seen at 15,800 and then 15,700 levels while there was Put Unwinding at all the immediate strikes with minor Put writing at 15,550 and then 15,700 levels. Options data suggested a broader trading range in between 15,600 and 15,900 levels.

Bank Nifty opened positive above 35,000 level, but could not sustain at higher levels. Followup buying interest was missing and the banking index drifted lower to 34,700 zone. It closed below its 50 DMA with a loss of around 150 points. It formed a bearish candle, but continued to form higher highs from the last four sessions. Now, it has to hold above 34,750 level to move up towards 35,250 and 35,500 levels, while on the downside support exists at 34,500 and 34,350 levels.

Nifty futures closed negative with a loss of 0.55 per cent at 15,733 level. Among specific stocks, the trade setup looked bullish in Manappuram, National Aluminium, Hindalco, Jubilant FoodWorks, Tata Steel, Godrej Consumer Products, State Bank of India, ICICI Pru, SBI Life and DLF but weak in Dr Reddy's, Glenmark, Aurobindo Pharma, Lupin, Cipla, Axis Bank, Biocon, ZEEL, BHEL, Grasim, SRF, Gail and Cholamandalam Investment and Fin.

(Chandan Taparia is a Technical & Derivative Analyst at MOFSL. Investors are advised to consult financial advisers before taking an investment calls based on these observations)