Nifty crunch time, using option chain

Post is for educational purposes only and not intended as trading/investing advice.

Nifty 50 and Nifty 500 indices are both trading in a tight range for the last week. Almost a formation of an mild ascending triangle, except its too small a time frame and also the price isnt criss crossing the pattern, with at least 2 touches to each side of the triangle. 

This is a congestion and one wonders which direction it will break in. The Chaikin Money Flow indicator is showing a bearish divergence on its default setting (20). However a 10 period CMF is supporting an upward breakout. Should one take 10 day CMF as we are looking at a smaller period of 5 day congestion where we are trying to figure out if there is more buying by bulls or more buying by bears. Its worth tracking this point to check once the breakout occurs, for future application!  

Option chain:

Looking at June's contracts on the Nifty here.

Most CALL OI is at a level of 9500, this can be said to be the resistance level. Most PUT OI is at at 8800 level, this can be the support level. (note for this just see out of money options i.e. the ones in the white shade).

One can see that in calls there is not a lot of addition of interest (seen from Change in OI column) for lower strikes, where as it is more prolific in lower strikes for Put. This is opposite of what we see at higher strike levels, where Change in OI is higher for calls than for puts. If both had moved together we could have made some inference about support and resistance moving higher (bullish) or lower (bearish). But since Change in OI between lower strikes and higher strikes is moving in the opposite direction for both calls and outs, we can say that market is undecided, which fits in with the intense congestion over the past week.

Finally we can see that while Open Interest (Chg in OI col) is rising for both Out of the Money calls and puts, it seems a tad heavier for Calls. We also see that despite a rising OI, the price of the calls are falling, which means sellers are more eager to sell/ write the calls than the buyers. Since sellers of options are considered to be more sophisticated investors we should take their eagerness to write calls (evidenced by the falling call premium despite rising OI), as a sign that sophisticated players are thinking that the market wont rise. 

So I would have to say that Nifty will break down from this congestion period. Though if it doesnt, it would be an interesting study.