F&O Manual| Indices trade positive, Nifty faces stiff resistance at 22,500

Indian benchmark indices traded higher amid a drop in volatility on April 23. Nifty options data hints at an immediate hurdle near the 22,500 level and hence, the risk-reward ratio is not favourable for fresh longs, said experts.

At around 1 pm, the Sensex was up 232.17 points, or 0.32 percent, at 73,880.79, and the Nifty was up 72.10 points, or 0.32 percent, at 22,408.50.

Ruchit Jain, Lead Research at 5Paisa.com, said, “Nifty has seen a rebound in the last couple of days from the support of 89 DEMA of 21,750. However, the index is now trading near the 61.8 percent retracement of the recent downmove.”

Jain recommends,  “One should prefer profit booking at current levels and look for stock-specific opportunities as the broader market is still outperforming.”

Bars in red indicate the change in open interest (OI) of call writers, while the green bars show the change in OI of put writers

Open interest

Open interest data shows heavy call writing at 22,500 levels.  Sheersham Gupta, Director and Senior Technical Analyst at Rupeezy, said, “Nifty in the past three sessions has moved more than 600 points. It is now solidly trading above its 20-day Exponential Moving Average (EMA), signalling a positive market outlook.”

“An unexpected development, however, was the sharp decline in the India VIX, which plummeted more than 20 percent to near 10, a level not seen since July 2023. This is a warning sign, especially for the options writers as the option premiums have crashed. A market correction could quickly reverse this trend, causing a surge in the India VIX and consequently, a rise in option premiums. The decrease in implied volatility was also evident across various stock options, ” said Gupta.

Also read: India VIX cools 19% as Nifty, Sensex open gap up; not a good sign, warn analysts

Gupta said Nifty right now is close to a crucial resistance of 22,500 displaying indecision. “If this level is breached, Nifty can see all-time high levels. On the downside, 22,250 should provide strong support to Nifty.”

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