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Below the Quote on Derivative outlook for the week by Dhirender Singh Bisht,  AVP - Equity Technical Research, SMC Global Securities Ltd

Both the broader indices, Nifty and Bank Nifty, ended the week with an approximate 1% gain. The Auto and Pharma sectors were the top performers, while profit booking was seen in the Media and Metal sectors. Analyzing Nifty's derivative data, the significant open interest for calls was observed at the 24,000 and 24,200 strikes, while put writers concentrated at the 23,500 strike. For Bank Nifty, the highest call open interest was at the 52,000 strike, with put open interest focused on the 51,000 strike. Implied volatility (IV) for Nifty's call options settled at 12.28%, while for puts it ended at 11.18%. The India VIX closed at 13.24%. The Put-Call Ratio Open Interest (PCR OI) stood at 0.92 for the week. The rollover rate for Nifty has decreased to 77.66%, which is lower than the previous month's rate but aligns closely with the three-month average of 76.99%. This indicates that the momentum for the January series is likely to follow a similar pattern to that of the December series, implying consistent market behaviour like December series. In contrast, the rollover rate for Bank Nifty is 67.81%, significantly lower than the previous month's rate of 76.82% and also below the three-month average of 71.02%. This sharp decline suggests a weaker momentum for the Bank Nifty in the upcoming series. Traders are advised to closely monitor the position buildup throughout the month, as it may give clearer insights into the direction the market will take for Bank Nifty. For the upcoming sessions, Nifty has support at 23,500 and resistance at 24,200. Technically, Nifty has formed an upside shadow on the daily chart and is facing resistance at the 100-period exponential moving average. Apart from a few sessions, Foreign Institutional Investors (FII) have been net sellers in the cash segment throughout December, signaling a bearish sentiment in the market. Despite the bounce on Friday, the market breadth in the F&O segment was negative, with 91 stocks closing in the green and 132 in the red, indicating that only Nifty stocks performed well while the broader market remained weak. We expect the market to remain under pressure in the upcoming week, with limited movement, which could lead to a decline in naked option premiums. Therefore, a bear put spread strategy can be considered for the coming week.

BEAR PUT SPREAD

One strategy that traders might consider in this bearish environment is the Bear Put Spread. This strategy is employed when traders anticipate a decline in the price of an underlying asset in the near future. It involves buying and selling put options with the same expiration but different strike prices. Specifically, a higher strike price put is purchased while a lower strike price put is sold. The purchased put is typically in-the-money (ITM) or at-the-money (ATM), while the sold put is out-of-the-money (OTM). This strategy results in a net debit for the trader, as the cost of the ITM/ATM put is partially offset by the cash flow generated from shorting the OTM put.

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