F&OTracker Fall in Call OI Hints at Profit Booking
A clear and decisive electoral mandate (absolute majority to a single party after 30 years) in the Lok Sabha elections has breathed new life into the markets. Expectations are running high about a gradual but certain economic turnaround going forward.
Coming back to F&O market internals, post election results, there has been an aggressive long buildup in the Nifty and Bank Nifty futures. Both these futures contracts’ open interest has seen around 40% jump.
On the options front, we have seen unwinding in most of the call options. Earlier, we had mentioned in our previous note that traders have initiated long positions by buying call options. The fall in call open interest indicates some amount of profit booking by traders as elections are over now.
Of late, we have also seen writing in out-of-the-money puts and calls, which indicates that options traders expect markets to trade in a range. Options data suggests a range of 7000-7400 for the current F&O series.
Option IVs have seen a sharp fall post the election results, which were very much in line with our expectations. Going forward, we believe that India VIX Index can correct further and test 15% levels.
We believe that the current scenario is best for options writing and recommend generating short straddle in Nifty futures at 6300 strike. Currently, the spread is trading at 140 points.
The CNX Media and CNX Midcap indices have given a breakout on long-term charts. We believe that mid-cap stocks will continue to outperform large-cap peers.