Trading Ahead of Expiry: Support Levels and OI data

After establishing a base around the 19,200 levels this month, the Nifty 50 index experienced a notable upswing of approximately 5% until mid-September. Subsequent to this upward movement, the index underwent a corrective decline on a daily chart, retracing nearly 61.80% of the prior gain, ie. gain from 19200 to 20200 levels and, it is currently making an effort to find support in the vicinity of the 19,600 levels. It’s worth noting that this level aligns with the 50-day Moving Average (MA) which is placed near 19631, indicating a strong support zone.

Today, the Nifty 50 has formed a candlestick pattern known as a “Doji.” This formation implies indecisiveness of participants; it can also be described as a state of equilibrium, as it signifies an equal balance of power between the bulls and bears. Nevertheless, it also reflects a certain degree of stability, especially following a four-day consecutive decline in the market. In light of the current market conditions, it may be worthwhile for traders and investors to consider the possibility of taking a long position in the Nifty, provided that the zone 19,600-19630 levels are held on a closing basis Current levels attract a favourable risk-reward ratio.

When observing the Nifty on a weekly chart, it’s evident that the index is currently hovering around a previous high, which is functioning as a significant support level, notably at the 19,600 mark. Moreover, the longer-term trend remains intact as evidenced by the sustained formation of higher highs and higher lows.

With reference to the options data for the upcoming September 28th expiry, it’s worth noting that we are currently in the week leading up to the expiry date. A closer look of the Open Interest (OI) data reveals a substantial build-up of Call OI, with the highest concentration seen at the 19,800 strike. Following this, there is a significant accumulation of Call OI at the 20,000 strike. This implies that the initial resistance is likely to be encountered at the 19,800 level. If this resistance is surpassed, it opens up the potential for further upside movement. Conversely, strong support is evident at the 19,500 level, where the maximum Put OI is concentrated. Market analysis, such as the one presented here, serves as a valuable tool for traders while keeping the risk tolerance at its best.

Alternate to Nifty50, one can look at individual large-cap stocks which have a positive correlation to the benchmark index.

  • Foram Chheda, CMT