01Cold open: the carpet got ripped up
Yesterday the market ripped 153 points higher to 24,231, and the Sensex expiry closed exactly at 77,500. The first higher close after seven straight lower ones, and it came with a structure. Two crore calls off the carpet. 69 lakh got added at 24,200, the biggest single add anywhere. And the PCR crossed one for the first time in this cycle.
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But overnight, the Nasdaq fell 1 percent, oil is above 94 dollars, gold is ripping higher, and Indian yields are rising at 6.87. The gap up lands exactly on 24,300. The board turned bullish the same night the world rang alarm bells.
02The tape: a broader based rally
The Nifty closed at 24,231, up 153 points, 0.64 percent. Breadth was stronger, 39 stocks up and 10 down, one sideways. The Nifty 500 almost 304 to 192, this was the broader based rally. The Sensex was up 628 points at 77,537, and VIX down 4.5 percent to 10.81.
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Everything green, Media 2.13 percent, Realty 1.4, capital markets 1.36, Eternal 2.31, Kotak Bank 1.65, ITC 1.60, Bajaj Finance 1.53. And the grading for yesterday, the buy on dips range worked perfectly, 76,900 to 77,800, the expiry magnet called at 77,500, closed at 77,537. I will take a 4.5 on that.
03The structure: two crore calls unwound
At 24,000, 1.63 crore puts have been written, the biggest support anywhere on the chain. After that, 24,200, where 69.2 lakh puts got added and the total line stands at 1.32 crore, the biggest support right now. At 24,300 we saw 26 lakh puts added.
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Calls got covered everywhere across the board. 24,100 minus 68 lakh, 24,200 minus 27 lakh, 24,500 minus 23 lakh, 24,000 minus 22 lakh, 24,300 minus 18 lakh. So roughly almost 2 crore calls got unwound. Resistance now is 24,300 with almost 98 lakh calls, 24,200 building a base with almost 84 lakh, and the highest resistance at 24,500 with 1.25 crore.
04The math: a rising magnet
The PCR climbed from 0.7 to 1.09, almost the first time above one in this cycle. Max pain is climbing towards 24,300 again and it is stable there. A rising max pain and a magnet gives you the same lesson, and the direction is clean. The monthly basis is still 61 points higher on the futures.
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Front IV is roughly 8 percent, rotating between 10 to 12.2, back to 9.5, back to 9, back to 8, and again climbing towards 9. The daily one standard deviation is roughly 140 points, 24,130 to 24,350. For Tuesday's expiry it is roughly 240 points, 24,000 on the lower end to 24,455. The straddle implies a similar 258 points, 23,980 to 24,490. So the math agrees with the option chain, the ceiling is 24,500 and the support is 24,000.
EP108 in 9 topics
05Positioning: the desk that cashed the lean is now long
The pros added 81,000 calls on the rally, the book now at 1.14 lakh, flipped index futures to long, and added 70,000 puts as protection. The desk that cashed the bearish lean at the low is now positioned long.
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The FIIs covered 80,000 call shorts, and that covering was the rally's fuel. They trimmed 93,000 puts, de-risking both directions, but the futures short stays at 2.12 lakh, and in cash they sold almost 583 crore into the rally. And the clients dumped 1.62 lakh calls into the first green day, the crowd finally sold something, still short almost 6.91 lakh having covered only 22,000.
06The flows and the signal
FII cash sold 583 crore, DII cash bought 3,583 crore, cumulative almost 43,000 crore for the month. FII stock futures added 3,243 crore, and FII index options sold 22,460 crore. The locals bought the breakout, the foreigners sold it. The war now runs into the strength.
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The signal has flipped to buy. 24,210 on Thursday, the projected value 24,230, the fourth day the projection has landed within single digits. So the expiry pin projection, max pain climbing with put walls, equals a pin zone around 24,300, if oil behaves. GIFT Nifty shows a gap up landing exactly at 24,322 into that 24,300 resistance, against a Nasdaq down 1 percent, Brent at 93.74 ripping from 88 to 92 to 94, and USD INR at 95.71.
07The plan: structure on our side for the first time
We remain buy on dips, unchanged, and for the first time this month the structure is on our side. The buy zone is dips towards 24,200 with 1.33 crore fresh puts underneath, which gives comfort. Buy zone one is 24,200, and a second between 24,050 and 24,150. Stop loss is below a 24,000 close, 24,100 on a closing basis, and intraday 24,000.
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Resistance is 24,300 where we open, then 24,450 is where the market should rally into, and it should oscillate before crossing 24,500 where 1.25 crore calls are written. Two higher closes in a row and the turn gets credible. Keep a watch on oil, 95 is the risk level, and above it 24,300 becomes a hurdle. Vol is at its low, so do not sell it into the close, buy into the close, but mind the theta decay. Size normal, defined risk always pays off, always play with spreads, do not play naked.
