01Cold open: the gap blinked
Yesterday we asked who blinks, the gap or the resistance, and the gap blinked. The open was near 24,300, that was the high for the day, the market sold 130 points into the close and settled at 24,119. The proprietary traders dumped their entire call book into the gap, with 1.8 lakh calls sold. The crowd took the other side and bought almost 1.62 lakh calls on top of what it already owned, and the naked put book now stands at 8.44 lakh. The writers pressed, with 4.3 crore fresh calls written across the chain in a single session, and the resistance at 24,300 is now 2.16 crore. Today the weekly and monthly expiries overlap. A 60 point gap down, Korea down 2 percent again. The test has moved from the resistance down to the support.
02Monday's tape: the open was the high
The Nifty closed at 24,119, down 32 points or 0.14 percent, and the two higher close streak ended. The gap up towards 24,300 sold all day. The Sensex ran a 588 point round trip, a high of 249 points and a low of 339 points, closing 172 points lower at 77,369. Breadth was 23 to 26. VIX rose 4.5 percent to 11.7, the second straight rise. Metals added 1.59 percent and IT was green, while PSU bank fell 0.93 percent and defence was negative. On the calls, I will take a four on five for yesterday, and the full scorecard is available on rupeecase.com.
03The board: 4.3 crore calls in one session
Across the option chain 4.3 crore calls were added in one session. The 24,300 strike is now almost 2.16 crore, so the resistance has doubled and it is the biggest single position of the cycle. The 24,200 strike stands at 1.65 crore, 24,250 at 1.26 crore, and 24,350 added almost 51 lakh. On the put side it retreated everywhere above 24,100. The 24,250 put unwound almost 37 lakh, 24,300 unwound 33 lakh, 24,200 unwound 27 lakh, and 24,000 unwound 14 lakh. The only puts added were 24,050 with 15 lakh, 24,150 with 11 lakh and 24,100 with 10 lakh, taking that strike to almost 91 lakh.
EP110 in 7 topics
04The expiry map: a sliding magnet
The PCR moved from 1.08 to 0.69 in one day. Max pain slid from 24,250 to 24,300 down to almost 24,200, and a sliding magnet is a negative thing for the market to follow. The basis slipped negative to minus 12 points after being positive 38 points on Friday, while September futures still hold positive 25 points. The front IV has risen almost 20 percent in a day, so vol has been rising. Expiry day one standard deviation gives 24,050 to 24,300. The at the money straddle at 24,100 trades at 120, so fear is coming down, and the straddle implied move of almost 150 points gives 24,050 to 24,340. The day's battlefield is 24,050 to 24,300 with max pain at 24,200.
05Who did what: the pros dumped the whole call book
The proprietary traders sold 1.8 lakh calls, dumping the entire 1.4 lakh long book into the gap, and they are now net short. They kept 1.98 lakh puts and stayed long futures, a cautious collar for a chop down. The desk that pressed long on Friday reversed it in one session, so respect that flip. The FIIs added 1.14 lakh puts to take the book to 5.82 lakh long, added 9,500 futures short to reach a total short book of 2.1 lakh, and covered 18,000 more calls in the fall, but in cash they bought 1,182 crore, the first buy in three days, so they are hedged for the event rather than exiting. The clients bought 1.62 lakh calls, exactly what the pros sold at the top, and added 1.46 lakh naked puts in one day to reach a record 8.44 lakh.
06The flows: derivatives bearish, cash bullish
The FIIs bought 1,182 crore in cash and the DIIs bought 2,493 crore in cash, while FII index futures sold 1,500 crore. So the derivatives read bearish and the cash reads bullish. The war has a new shape: everyone owns protection and the crowd is the only naked one. On the predicted values the signal has flipped from buy to sell, with the projection at 24,104, below which the market tends to go negative, and the expiry pin is trading constant at 24,200. GIFT Nifty is 60 points down at 24,160, straight into 24,150. Korea is down 2 percent, Taiwan 0.86 percent, Hang Seng 0.13 percent, with the Nikkei the only green at 0.38 percent. Brent is steady at 92.63, gold at a record 4,643, the dollar index above 99 and USD INR at 95.74.
Chapter 7 of 7, about 1:46 of the 10:05
07The plan: defence first on an overlap expiry
The gap down opens at 24,150 and the first fight is defence, not offence. 24,100 is the trapdoor, so we are already entering negative gamma territory. The crowd holds a record 8.44 lakh naked puts, so acceleration towards 24,050 is the first support we can see, with 1.6 crore puts sitting there. The pin at 24,100 could drift another 50 points lower. Resistance stands at 24,250 with 1.26 crore calls and 24,300 with 2.16 crore, and nothing crosses that today. Base case, the open is defended, the pin is backed and we close around 24,200. The squeeze case is short covering lifting us to 24,250 to 24,300. The risk case is below 24,100, rolling down to 24,000 with expiry towards 24,050. Weekly and monthly books settle together so expect heavier volatility and rollovers, and watch the cash close. Only spreads, no naked selling and no naked buying.
