FII covered 32,000 contracts and the squeeze isn’t over

So the question is, was yesterday the squeeze, or was it just the beginning of the squeeze?

INTRO

This is The Tanmay Edge, India’s pre-market edge, every trading day. I am Tanmay Kurtkoti. Season 2, Episode 16. Sensex weekly expiry. Let’s go.

SEG 1, GLOBAL + COMMODITIES

GIFT Nifty this morning, 24,005. Down 94 from yesterday’s close of 23,997. That’s a nothing pullback after an 874-point rally. The market is digesting, not reversing.

US markets, S&P +2.51%, Nasdaq +2.80%. Dow flat. Europe was massive, DAX +4.81%, CAC +4.30%, FTSE +2.45%. The ceasefire rally went global.

Asia this morning, profit booking. Nikkei -0.50%, Hang Seng -0.52%, KOSPI -1.05%. After yesterday’s 5-8% surges, this is completely normal. You don’t go vertical 2 days in a row.

This is the story today. And I need you to pay attention because what happened yesterday in the F&O data is the kind of thing that only shows up a few times a year.

Pro traders, they flipped. 2 days ago Pro was sitting on 37,656 long puts, hedging, cautious. Yesterday they dumped those and went to -28,233 short puts. That’s a full flip from defensive to aggressive bullish. When I say ‘short puts’, Pro is now selling puts, meaning they believe the market won’t fall. They’re collecting premium and betting on sideways-to-up. Pro flips first. Always watch Pro.

FII, covered 32,035 futures contracts in 1 session. NOI went from -2,59,435 to -2,27,400. That’s the biggest single-day cover in Season 2. They also bought ₹5,073 crore worth of index futures. In the last 3 days, FII has been a net buyer of ₹10,191 crore in derivatives. April month-to-date is now +₹5,187 crore. For context, March was -₹1,76,544 crore. That’s a complete U-turn.

But here’s the thing, they’re still short 2,27,400 contracts. That’s massive. At 2,68,462 we hit the peak 4 days ago. They’ve covered 41,000 in 2 days. But 2,27,400 is still one of the highest net short positions we’ve tracked. The covering isn’t done.

Client, closed out 1,05,605 short-put contracts. Now remember, short puts are long delta. When you’re short puts and the market gaps up 874 points, you’re making money. Those puts are rapidly losing value in your favour. So Client wasn’t getting squeezed here, they were booking profits. 1 lakh contracts of short puts that suddenly went deep in their favour, and they took the money off the table. Smart exit, actually.

So the picture is, Pro flipped bullish first, FII is being forced to cover their futures shorts, and Client took profits on the gap-up. The only participant under real pressure here is FII. And with 2,27,400 still short, that pressure isn’t going away.

Sensex straddle is at 800. I calculate the implied range as 1.25 times the straddle price, that gives us 1,000 points. With Sensex at 77,600, the market is pricing a range of 76,600 to 78,600. On Nifty terms, that’s roughly 23,700 to 24,300.

Now here’s the key, IV has already been crushed 41% from yesterday’s gap. The screener is showing a Sell IV / Sell Options signal. IV at 20.97% with the proprietary volatility model at 20.06. When IV is above the model but collapsing fast, that’s a premium-selling environment. Don’t buy options on a Day 2 vol crush, sell them.

Sensex GEX, call wall building at 77,500 with 9,66,980 in open interest. The 78,000 strike has 1,420,340 OI with massive volume, 3,33,500 contracts traded. Put OI totals 3.86 crore vs Call OI at 3.08 crore. The put side is heavier, which means support is better defined than resistance.

Support zone: 77,000-77,200 on Sensex, that’s roughly 23,800-23,850 on Nifty. Resistance: 78,000-78,200, which maps to 24,100-24,150 on Nifty. Weekly expiry dynamics mean we could see pinning action around the high-OI strikes, 77,500 and 78,000 are the magnets.

When a massive gap happens, like yesterday’s 874-point rally, IV spikes first, then collapses. On Day 1, volatility is still elevated because the market is pricing uncertainty. You have wide spreads, high premiums, but also high risk of a reversal. Selling into that is risky.

Day 2 is different. IV has already dropped 41%. The gap has been absorbed. The market’s reaction to the reaction is priced in. Now premiums are still somewhat elevated but the violent move is behind you. That’s when you sell, when the premium is above fair value but the real volatility is declining. Today’s Sensex straddle at 800 with IV at 21%, that’s still rich relative to realized vol. This is the premium-selling sweet spot.

My view today, buy on dips, sell volatility.

GIFT is barely down. Asia is taking profits but that’s normal. The structure hasn’t changed, FII is still massively short and being forced to cover. Pro has flipped bullish. The straddle says the market is pricing 1,000 points of Sensex movement, but I think the actual realized range will be tighter because vol is being crushed.

Key watch, 23,800 on Nifty is your dip-buy zone. Below that, something has changed. Above 24,100, you’re in new territory for this move and FII covering could accelerate. Sensex 78,000 is the call wall.

Quick scorecard, yesterday I said long, long options, long volatility. Market rallied 874 points. That’s the 5th consecutive winning call this season. We’ve been on the right side of every major move since EP13. That’s not luck, that’s the data working.

Gold international, $4,723, basically flat. MCX Gold at 1,51,619, down 157. Silver MCX at 2,39,894, up 3.69%, interesting outperformance there.

SEG 4, SCREENER + SECTORS

Screener signal, Sensex Fast is on BUY. Signal triggered at 72,965. Projected price 77,863. Current trade MTM is +4,636, that’s +6.35%. Rolling 3-trade MTM at +5.69%, rolling 5-trade at +8.21%. The system is locked in on the long side and has been right through this entire rally sequence.

Sector picture, yesterday was bank-dominated. Bank Nifty +5.67%, Fin Services +5.54%. That’s where the leverage was. Today, watch for rotation. If banks consolidate, the rally broadens to midcaps and IT, especially with Dollar Index bouncing back above 99, weak dollar beneficiaries might give back some gains.

Energy is the one to watch, crude bounced 2% overnight. Yesterday ONGC, Coal India, and energy names were the only laggards. If crude continues recovering, those names get a relief bounce. If crude fades back, the ceasefire trade continues and oil-consuming sectors keep winning.

TCS Q4 results today, this is the earnings season kickoff. How TCS guides on deal wins and discretionary spending will set the tone for the entire IT pack. That matters more than any single number.

SEG 5, TANMAY’S READ

COLD OPEN

32,000 contracts.

That’s how many FII covered yesterday. In 1 session. Biggest single-day unwind we’ve seen all season.

And they’re still short 2,27,400 contracts.

RupeeCase Nifty portfolio, yesterday was interesting. The portfolio is up 91.58% gross, 9.77% CAGR. But yesterday it lagged the benchmark because Bank Nifty drove the rally at +5.67% and our portfolio is equally-weighted across 10 stocks, not bank-heavy. SHRIRAMFIN was the star at +10.14%. COALINDIA gave back -2.52% because crude crashing hurts the energy basket. That’s diversification working as designed, you don’t get all the upside on bank-driven days, but you don’t get blown up on bank-down days either. Track it live on rupeecase dot com.

CTA CLOSE

That’s your edge for today. Sensex weekly expiry, FII still short 2,27,400, and the vol crush is your friend. If this added value, share it with 1 trader who needs it right now. Subscribe on Apple Podcasts, Spotify, or stream live on rupeecase dot com. I’m building RupeeCase, India’s systematic investing terminal. Link is in the show notes.

You just got earlier. See you tomorrow.