1.The Ripple Effect of Global Crashes

 

The Indian equity market witnessed a tumultuous start to April 2025, with a severe gap-down opening on April 7, mirroring a global market crash triggered by escalating tariff tensions. The Nifty 50 closed 3% lower at 22,162, while the Bank Nifty ended at 49,860, down 3.2%, despite a partial recovery from the day's lows. This paper delves into participant-wise open interest (OI) data in equity derivatives, offering market insights and a focused analysis of the Bank Nifty’s potential movement. With the India VIX surging to 22.79—its highest since June 2024—the stage is set for heightened volatility, making strategic trading decisions critical.

 2. Market Overview and Participant-Wise Open Interest Analysis

Decoding the Derivatives Battlefield

The participant-wise OI data as of April 7, 2025, reveals distinct trading behaviors among Domestic Institutional Investors (DIIs), Foreign Institutional Investors (FIIs), and Proprietary Traders (Pros). DIIs exhibited a net short bias, holding 4,026,933 total long contracts against 4,380,527 short contracts, with a heavy concentration in Future Stock Short positions (4,076,546 contracts). This suggests a bearish outlook, possibly as a hedge against cash market exposure. FIIs, conversely, maintained a balanced yet aggressive stance, with 6,049,918 long contracts and 4,127,017 short contracts, showing significant activity in Option Index Call Long (968,628) and Put Long (920,621) positions—indicative of volatility hedging amid global uncertainty. Pros leaned slightly bullish, with 4,650,626 long contracts versus 4,522,428 short contracts, driven by Option Stock Call Long (812,765) and Put Long (936,722) positions, reflecting speculative bets on individual stock movements. The total OI across all participants stood at 19,706,168 contracts for both long and short positions, underscoring robust market activity despite the downturn.

The Nifty’s Put-Call Ratio (PCR) dropped to 0.72 from 0.74, signaling a bearish tilt as Call selling outpaced Put selling. Coupled with a 65.70% surge in India VIX to 22.79, the market’s fear gauge points to sustained nervousness, likely fueled by tariff-related global slowdown fears.

 3. Bank Nifty Index Movement and Technical Outlook

Bank Nifty: A Tale of Resilience and Risk

 

The Bank Nifty index, closing at 49,860 on April 7, 2025, mirrored the broader market’s decline with a 3.2% drop but showed signs of resilience with a 1.4% recovery from its day’s low. Technical analysis reveals a bearish structure, as the index slipped below all key exponential moving averages (10, 20, 50, 100, and 200-day EMAs) and the Bollinger Bands’ midline. The formation of a bullish candlestick with a long upper shadow suggests buying interest at lower levels, yet momentum indicators like RSI (negative crossover) and MACD (nearing a negative crossover) indicate weakening bullish momentum.

Projected Movement: Given the global tariff overhang and domestic technical weakness, the Bank Nifty is likely to remain under pressure in the near term. Immediate support lies at 49,330 (pivot) and 49,368 (Fibonacci), with a critical lower support at 48,545 (pivot) if selling intensifies. Resistance is anticipated at 50,299 (pivot) and 50,610 (Fibonacci), with a breach above 51,084 (pivot) signaling a potential reversal. The high India VIX and bearish OI trends suggest a downward bias unless significant positive catalysts emerge.

4. Strategic Insights: Buying Put Options on Bank Nifty

Striking at the Peak: Put Option Playbook

 

Given the Bank Nifty’s technical breakdown and elevated volatility, buying put options at high levels presents a strategic opportunity for traders anticipating further declines. The monthly options data highlights maximum Call OI at the 52,000 strike (13.02 lakh contracts), marking it as a formidable resistance, while maximum Put OI at 50,000 (10.84 lakh contracts) suggests a key support level.

Critical Entry Levels: Initiate put buying if the Bank Nifty rallies to resistance zones of 50,267–50,610 (Fibonacci retracement levels) or 50,299–50,599 (pivot points). These levels align with heavy Call writing (e.g., 50,000 strike added 3.47 lakh contracts), indicating potential selling pressure on any bounce-back.

Critical Exit Levels:Target exits near support zones of 49,368 (Fibonacci) or 49,330 (pivot) for partial profits, with a deeper target at 48,636–48,545 (Fibonacci and pivot) if bearish momentum accelerates. The high India VIX (22.79) supports larger price swings, enhancing put option premiums.

Rationale:The bearish technical setup, combined with a short build-up in 99 stocks and a low PCR (0.72), justifies a put-buying strategy. Traders should monitor global cues and India VIX trends, as a further surge could amplify downside potential.

 5. Conclusion

 Weathering the Volatility Vortex

The equity derivatives market on April 7, 2025, reflects a complex interplay of fear, hedging, and speculative positioning amid a global tariff-induced crash. While DIIs adopt a defensive stance and FIIs hedge aggressively, the Bank Nifty’s technical weakness and elevated volatility signal continued challenges ahead. Buying put options at resistance levels offers a calculated approach to capitalize on potential declines, with 50,267–50,610 as entry points and 48,545–49,368 as exit targets. As the market navigates this storm, adaptability and disciplined risk management will be key to unlocking profitable trades.

 Anish Jagdish Parashar 

 Indirect Tax India research 

Disclaimer: Content reflects author's views .For investment decisions and trading proposes consult your financial advisor.