Nifty index witnessed sustain selling pressure till the end of session towards 10,925 zone on Friday and lost its breakout momentum.
It wiped out most of its gain of the week and formed a High Wave candle with long upper shadow which indicates that selling pressure is intensifying at higher zones.
It has negated its formation of higher lows of last seven trading sessions and witnessed profit booking after the consecutive gains of last six trading sessions.
It formed a Doji candle followed by a bearish candle on daily scale which suggests a short term pause in positive momentum as it failed to hold its gains even after its consolidation breakout above 10,985 zone.
Now it has to again cross and hold above 10,985 zone to witness an upmove towards 11,080 then 11,176 zone while on the downside a hold below 10,929 could drag the index towards next support at 10,820 then 10,777 zones.
Nifty index witnessed lower rollovers from January to February series and it has seen addition of around 20 percent in six-seven trading sessions of this series with long attraction which indicates that some upward bias is getting build but intact Call open interest (OI) at higher strike is restricting its upside momentum.
Nifty index failed to hold its breakout as Call writers are not allowing it to move higher from last three series but at the same time dips are also being bought.
India VIX fell by 0.95 percent to 15.57 levels in this week and needs to hold below 16 zone to get the dips to again bought in the market.
On option front, maximum Put OI congestion is seen at 10,700, 10,400 and 11,000 strike which are having same kind of outstanding OI inventories while maximum Call OI is at 11,000 followed by 11,200 strike. Put unwinding is at all the immediate strikes while Call writing is at 11,000 to 11,200 strikes. Option band signifies a slight lower shift in the trading range in between 10,800 to 11,100 zones.
Bank Nifty failed to surpass 27,500 zone and corrected towards 27,220 level in the last session. It has negated the formation of higher lows of last four sessions and finding multiple hurdles in between 27,500 to 27,750 zones from five weeks.
Nifty surpassed its hurdle of 10,985 but Bank Nifty is shifting is resistances to lower zones which is not supporting the broader index to move higher. Now it has to cross and hold above 27,350 zones to extend its move towards 27,500 then 27,750 zones while on the downside support exists at 27,000 then 26,850 zone.
Stock specific buying interest could be seen in the stock like Bajaj Finance, UPL, Kotak Mahindra Bank, Divis Labs, Havells, Pidilite Industries while negative set up in most of the PSU, Metals, Indiabulls Housing Finance, L&T, Exide Industries and Motherson Sumi etc.
Index may stuck in consolidation band so short Vega and Theta strategy like Deep Out of the Money Short Strangle, Ladder Spread, Ratio Spread could favour to Option traders in such kind of market scenario.
Now Nifty weekly contracts are also getting started from this week which could attract more traders to its weekly contract to play the swing by paying the lower trading premium similar to Bank Nifty weekly contracts.
The author is Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited.
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