India Volatility Index jumps 7.5% as uncertainty looms

On Thursday,market gave away the rebound seen to come back to its losing streak and ended the week with a fall of 2.1%. With a number of market indicators reflecting weakness,the Nifty is likely to find support only near 5,200,feel a section of experts.

The decline came as a surprise to most market participants as Thursday’s move was believed to be a steady start for an intermediate recovery towards 5,600.

According to Savio Shetty,research analyst- Institutional Derivatives,Prabhudas Liladhar,“Thursday’s move was a successful bull trap which began with a flat opening and a step up rise. Moreover,buildup of 12 lakh shares in the open interest of in-the-money 5,500 puts deceived traders and caught them off guard on Friday.’

Nifty February future not only closed with a decline of 2.5% but also at a discount of close to 9 points to the underlying index de spite no dividend being announced in any of the Nifty constituent stocks. This development reflects weaker sentiment. The simultaneous rise in the volume and the open interest of the Nifty February future reiterates the liquidation pressure and bearishness among traders.

The progress in the Options of the February series now indicates that the fall is likely to get extended by another 200 points towards 5,200.

This view is supported by a sixfold increase in the open interest of in-the-money 5,300 calls of the February series. “This huge buildup indicates the confidence of call writers for a most probable move towards 5,200,” added Shetty.