For four sessions through Friday, traders sold more call options than put options on stocks, Nifty and Bank Nifty, culminating in the Nifty correcting 450 points from its record high. On February 16, when the Nifty tested a new high, the traders sold Rs 280 crore worth more calls than puts. The difference widened to Rs 13,604 crore the next day. It widened further to Rs 26,982 crore on Thursday.
However, on Friday, when the market closed almost a percent lower to 14,981.75, the difference between marketwide calls to puts sold narrowed slightly to Rs 25,141 crore.
“The reluctance of option writers to sell more calls on the day of a significant fall might hold cues that the profit booking could be more or less over,” said Rohit Srivastava, founder IndiaCharts. “Added to that is metals and PSU sector charts still looking strong. It’s likely the profit booking is done, for now.”
Sunil Pachisia, director, institutional sales, Pratibhuti Vinihit, agreed, adding that the 84-point recovery in Nifty from Friday’s low shows the 15,000 support could hold, “in which case we should witness a bounce toward 15,250-15,260 levels in the ensuing sessions.”
The market could find intermediate support around Friday’s low of 14,898. If this doesn’t hold, the next support would kick in at 14,730-14,740, followed by 14,300, said Vishal Wagh, research head at Bonanza Portfolio. Wagh expects a “sell on rise” market, for now.
In a bullish trend, option writers sell more puts than calls. When they anticipate profit booking, they sell more calls than puts on the premise that a correction would enable them to pocket the premiums paid by call option buyers.
