Equity Futures: Call premiums decline across strikes in weak market

Informist, Tuesday, Oct 3, 2023


By Padmini Dhruvaraj


MUMBAI – Premiums across strikes of call options fell as the Nifty 50 turned negative in the spot market. Analysts said writing was highest at out-of-the-money call options of 19600-19800 strike prices, indicating market participants expect the index to fall further.


The 50-stock index opened lower on the back of weak sentiment in other Asian indices and extended losses weighed by shares of financial services, automobiles, and oil and gas companies. Eventually, the Nifty 50 closed 0.6% lower at 19528.75 points.


"Investors preferred to shun their equity exposure ahead of the monetary policy committee meeting this week," said Shrikant Chouhan, head of research at Kotak Securities Ltd. The outcome of the Reserve Bank of India's monetary policy meeting is due Friday. The central bank is largely expected to hold the rates. 


Additionally, "The dollar's continued strength against major currencies, including rupee, has resulted in a flight of capital to safe haven dollar securities, thus making investors jittery," said Prashanth Tapse, senior vice-president of research at Mehta Equities.


The 19600 strike price of the call options had the highest net change in open interest with 6.37 mln new positions being added. However, the premium of the strike fell 69.78% to 34.90 rupees. Additionally, some aggressive call options selling was seen at 19900, 20000, and 20100 strike prices.


"The strikes of 19600 saw the addition of call open interest. The zone is anticipated to continue to act as immediate resistance," said Avdhut Bagkar, a technical and derivatives analyst at StoxBox.


On the put front, premiums of the in-the-money and out-of-the money contracts – 19200-20000 – rose, indicating bearishness in the market. "Technically, on daily charts, the Nifty has formed a bearish candle and on intraday charts it is still holding lower top formation, which is largely negative," Chouhan said. 


The 19500 strike attracted the highest net open interests today with 2.87 mln new positions, with its premiums rising 61.5% to 53.85 rupees. Some aggressive put selling was also seen at 17750 and 18900 strike prices. 


However, a technical and derivatives analyst said there was put writing seen at 19500 and 19600 strike prices today, which shows that the Nifty 50 has a strong resistance at 19500 and will bounce back in the next session.


Meanwhile, the October futures contract of the Nifty 50 today closed at a premium of 33.25 points to the spot index. Open interest in the contract rose 8.46% to 10.17 mln, according to provisional data.


Going forward, analysts expect 19580 to be the immediate resistance zone, and above which the index could move up till 19700-19725. On the flip side, 19450 as a strong support zone and if the selling pressure accelerates, the index could slip to 19350.


–Nifty 50 Oct closed at 19562.00, down 147 points; 33.25-point premium to spot index

–Nifty 50 Nov closed at 19685.00, down 141.60 points; 156.25-point premium to spot index

–Nifty 50 Dec closed at 19798.00, down 137.80 points; 269.25-point premium to spot index


Reliance Industries, Bajaj Finance, State Bank of India, Vedanta, Mahanagar Gas, Hindustan Unilever, Asian Paints, Maruti Suzuki, HDFC Bank, Hero MotoCorp, and REC were among the most actively traded underlying stocks.  End


IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT


Edited by Deepshikha Bhardwaj



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