F&0 View: Nifty headed lower, say experts

The Nifty VIX jumped by a whopping 64.35% to 28.13 and the OI jumped by 20% on a provisional basis.

The markets were hammered on Monday due to turbulence across the global bourses, especially China. The S&P BSE Sensex tanked by 1,624 points or 5.9% to 25,742, also its lowest level since August 11, 2014. The Nifty broke its crucial support level of 8,200 in today's trade after hovering around those levels throughout June and July.

The Nifty August futures closed lower by 504.25 points or 6.07% at 7,802.1. In so doing, the Nifty August futures closed at a discount of 6.9 points as against a premium of 6.4 points on Friday, which suggests that we are are oversold at current levels. However, the 20% jump in Nifty OI on a provisional basis, accompanied by the price carnage, means that there is still steam left on the downside.

The Nifty VIX jumped by a whopping 64.35% to 28.13 on a closing basis from 17.11 in the previous session, going by the data on the NSE. The Nifty volitility index had in fact zoomed by 75% in intra-day trades to touch a 52-week high of 30.65 before ending a tad off its highs. Given today's close, the Nifty VIX is now at the levels last seen in May 2014.

The India VIX is a measure of demand for protection against equity market swings and such a spectacular jump in this volatility index or the fear index, as it is better known, is a portend of more volatile and painful days ahead. The counterpart of India VI i.e. the CBOE VIX index had jumped by 46.5% on Friday, which only goes to prove that the ongoing swings in the Indian indices are a byproduct of the global volatility.

Fresh put writing is seen at the strike prices of 7,800, 7,700 and 7,600. Moreover, the fact that there is highest put open interest at the strike price of 8,200, which is considerably in-the-money at this juncture, is an indication that put writers are trapped at higher levels and the real resultant possibility of unwinding of these puts could further aggravate the fall, going into the future Moreover, the huge call writing at the Nifty stikes, ranging from 7,900 to 8,200, suggests that these levels would act as an important resistances in the near future.

According to Chandan Taparia, derivatives analyst, Anand Rathi Research, the fresh liquidation of longs and addition of shorts positions, as also the rising volatility and falling PCR proves that we are in a bear grip and headed to lower levels in the nbear future. The OI data points to the fact that the Nifty has a support at 7,725, which is the low of October 2014. On the higher side, the Nifty is likely to see relief only above 8,000.

Siddharth Bhamre, Head - Derivatives, Angel Broking reckons that the magnitude of the fall has rendered the derivatives data insufficient/insignificant. The impending August is also irrelevant, given the fact that the ongoing selling is cash-based and institutional-driven. He suggests that traders stay away from the markets and avoid any bottom-fishing for the time being.

To conclude, the stock markets are likely to remain volatile in the near future as traders roll over positions from the current August series to the next month series ahead of the derivatives contracts expiry scheduled on Thursday i.e. August 27, 2015. Technically, with the Nifty comprehensively breaking the crucial support of 8,000, the index seems to have entered into an intermediate downtrend and pullback rallies, if any, could be sharp and short-lived.