01Cold open: two points off the magnet
Friday the market closed at 24,252, exactly two points off the predicted magnet, with max pain still standing between 24,250 and 24,300. The whole day was a 77 point coil that opened at the resistance and dipped into the buy zone we called, then closed exactly at 24,250. Thursday the call carpet got ripped up. Friday the writers rebuilt it one strike higher, with 37 lakh calls returning at 24,300. Puts thickened underneath, so the support has increased. Overnight oil broke to 92.7, Korea is down 2.8 percent, gold made another record at 4,646, and GIFT Nifty is showing a 100 point gap up above the 24,300 resistance. Expiry is tomorrow. Something blinks today, the gap or the resistance.
02Friday's tape: a 77 point coil
The Nifty closed at 24,252, the second higher close in the range. The range was 77 points, the open was 24,284 and that was the high, the low was 24,206, the tightest day in weeks. Breadth was dead even at 25 up and 24 down. The Sensex closed at 77,540, almost flat after a 280 point round trip. VIX rose 4.2 percent to 11.2 on a flat day while the options IV fell, so edges were being bought under the calmness. Banks led at 0.46 percent, metals 0.86 percent, PSU green, while FMCG fell 0.7 percent, auto 0.6 percent and IT dragged 0.46 percent lower. Power Grid added 2.66 percent, BEL 1.17 percent and Kotak Bank 1.08 percent. Trent fell 1.53 percent and Maruti 1.51 percent.
03The board: the resistance rebuilt one strike higher
Thursday two crore calls got covered. Friday the writers rebuilt at 24,300, where 37 lakh calls were added to take the total to 1.34 crore sold. That is the first resistance. More fresh calls came at 24,250 with 26 lakh added, 24,550 with 19 lakh, 24,350 with 14 lakh and 24,400 with 11 lakh, so writing happened across the board. Puts advanced too. The 24,200 put added almost 17 lakh to reach 1.5 crore, the 24,000 put added 13 lakh to reach 1.77 crore, and 24,300 holds 95 lakh puts. At the money 24,250 reads 67 lakh calls against 68 lakh puts, almost even. PCR is just above one at 1.07 and max pain still stands between 24,250 and 24,300.
EP109 in 7 topics
04The volatility map: one SD sits above the resistance
Front IV is just below the 10 mark, with vol moving from 10 down to 8.2 and settling there. The daily one standard deviation is roughly 95 points, giving 24,158 to 24,346. The at the money straddle settled at 163, and the straddle implied move of roughly 204 points gives a range of 24,050 on the lower end to 24,455 on the upper end. The one standard deviation upper edge of 24,346 sits above the 24,300 resistance, so that strike is going to get tested. The actual battlefield is between 24,200 and 24,380 to 24,400. Negative gamma sits below 24,200 and positive gamma above 24,300, which leaves 24,200 to 24,300 as a dead zone.
05Who did what: pros long everything, crowd fading both ways
The pros added 31,000 more calls to take the book to 1.4 lakh, added 18,000 puts to almost 1.85 lakh, and stayed long 10,000 futures, so the flip is holding. The pros are long calls, long puts and long futures. The FIIs covered around 16,000 more calls, taking the two day cover to roughly a lakh, trimmed 11,000 puts in a real de-risk, kept futures short at 2.1 lakh and added another 15,000 stock futures contracts. So the FIIs are short calls, long puts and short index futures while carrying a large long stock futures book. The clients sold another 46,000 calls, two straight days dumping into strength, and re-added 7,000 naked puts to grow the short put book to 6.98 lakh.
06The flows: foreigners sell cash and buy derivatives
FII cash sold 542 crore on Friday while DII cash bought 2,124 crore. In derivatives the FIIs bought index options worth 838 crore, stock futures worth 858 crore and index futures worth 364 crore. So the foreigners sold Indian cash and bought Indian derivatives, which reads as re-entry rather than an exit. The buy signal is still live from 24,210, so the current trade is up by 41 points. Rolling three trades is almost 900 points on the Nifty, or three and a half percent, and rolling five trades is more than 1,000 points, or 4.17 percent. The futures ladder carries 37 points of basis and the expiry pin prediction is 24,250 to 24,300.
Chapter 7 of 7, about 1:44 of the 11:34
07The plan: do not chase the gap
The bias remains buy on dips. The gap opens above 24,300, so do not chase the open. Let the 24,300 resistance get broken and let 24,300 get held. Base case, the gap up gets sold back into the 24,250 to 24,300 zone, with positive gamma only above 24,300 and 1.35 crore calls sitting there. The first buy zone is dips toward 24,200 to 24,250 with 1.5 crore puts as support, and the next is 24,000 to 24,100. Stop loss below 24,100 on a closing basis and 24,000 intraday. If 24,300 holds into the close that is a third higher close and the magnet shifts to 24,350 to 24,400. Watch Asia and keep oil below 93. Expiry is tomorrow so theta rules today. Spreads only, never naked, flat by Tuesday at 3:15.
