After losing more than 6% since the start of this month, the option traders see 4,700 as a strong support level for Nifty.
On Wednesday, Nifty closed at 4,751 or 20 points lower. Even after losing 4.7 lakh shares of open interest on Wednesday, the Nifty 4,700 puts for the October series continued to have the highest open interest. Interestingly, the out-of-the money put options for 4,300-4,400 strike price gained significant open interest in the last couple of days.
According to derivative traders, the above trend indicated that the options traders are expecting Nifty to find support at 4,700, failing which it could dip to 4,300 level.
On the higher side, the traders seem to be eyeing 4,800 as the crucial resistance given that 4,800 calls for the October series have added close to 15 lakh shares in the last two trading sessions.
According to TS Harihar of ICICI Securities, the development in the October series so far indicates that the market sentiment has increasingly turned negative indicating a correction towards 4,200-4,100 levels.
?Most of the directional traders are either shorting Nifty futures or buying out-of-the money put options at the lower strike price. This coupled with the intraday trend of volumes falling at the higher end of day’s trade, depicts a bearish sentiment,? he added.
In the last two trading sessions, the strike price of 4,300 and 4,400 have added the maximum open interest on the put side.
On Tuesday, while October 4,300 puts added 20.5 lakh shares, 4,400 puts gained 7.4 lakh shares in open interest on Thursday.
According to Siddarth Bhamre, head-equity derivatives at Angel Broking, besides SBI, major banking stocks like ICICI, Axis Bank have seen a rise in short positions which has kept the markets under pressure. The market decline in October series has been accompanied by a jump in the market volatility. On Tuesday India VIX, a gauge of the expected market volatility in the next one month, jumped 6% to 37.19, its highest level since August 24, 2009.
?After a correction towards 4,200-4,100 levels, the volatility in the market may come off towards 25-26 levels which could mark the beginning of a consolidation phase for the market,? said Harihar.