01Cold open: the banks bought themselves back
Today the banks bought themselves back. And we have Nifty expiry tomorrow, along with an MSCI rebalance that is going to happen in the CAS closing session, so an extremely volatile day is what we are looking into. This is the cleanest proof you will get that Thursday's marks were mechanical and that the CAS session is what is bringing in the volatility. On Thursday the closing auction took 1,094 points off the BANKEX and marked IndusInd, Federal, PNB and Canara down two to four percent on prints the tape never made. On Friday the BANKEX took back 650 of those points, sixty percent of it, in a single session, and it did that with no news at any of those banks.
02Friday's tape: one sector did all the work
The Nifty closed at 24,175, up 85 points, up 0.35 percent, with a low of 24,076 and a high of 24,188. The Sensex closed 331 points up, 0.43 percent. Volume almost 3,000 lakh, value 21,000 crore. The VIX fell to 10.66, down 4 percent, back under the 11 level after three straight sessions of rising. But you need to know what actually did the work, because it was one sector. IT rose 3.51 percent with ten of its ten constituents advancing, a perfect breadth print inside the sector. TCS 4 percent, Infosys 3.5, LTIMindtree 3 percent. All the IT names carried it through. And the Nifty rose 35 basis points, so IT was very nearly the entire index move and everything else was the noise around it.
03The warning: the index rose and the average stock fell
The Nifty 50 was 30 up against 19 down in the print. The Nifty 500 was 225 up against 271 down. The total market was 350 up against 396 down. The index rose and the average stock fell. Do not mistake an IT rally for a broad based market. On yesterday's call I will take a four on five. The tape, not the close, rule worked. 24,000 held as the support and 24,300 was never threatened.
EP114 in 7 topics
04The board inverted: puts written against calls coming off
Now the options board, and this is a complete reversal. For three straight sessions calls were being written at three to three and a half times the pace of the puts. On Friday that inverted, and badly. Put open interest was added 3.11 crore while call open interest was reduced by 36 lakh. And look at where. 44.4 lakh onto 24,100, taking it to almost the biggest single add on the board. 31.6 lakh onto 24,000, taking it to 1.02 crore, which is now the biggest position anywhere on the board. 23 lakh onto 23,900, and another 14 lakh onto 24,200. On the call side, 24,400 and 24,200, everything came off. The PCR went from 0.59 to almost 0.776, its first rise in four sessions. Max pain held at 24,200 while the spot closed at 24,175, just 24 points below the magnet on expiry eve with an MSCI rebalance. And the gamma gate moved down to the 24,250 to 24,300 level, so the flip is closer than it was. To read it simply: the writers spent three days selling the upside and one day buying the downside.
05The map: the one SD band brackets the magnet
One standard deviation into tomorrow's expiry gives a range of 24,050 to 24,300. Look where those edges stand. The lower edge, 24,066, sits exactly on Friday's low of 24,076. The upper edge, 24,285, sits just under 24,300. The band brackets the magnet, and the board wants 24,200. The straddle implied range is wider, around 23,950 on the lower end to 24,400 on the upper end, or exactly 23,967 to 24,384. And the futures ladder: tomorrow's contract at plus 70 basis, next week 107 points, and September at plus 188.
06Two big flips: the pros turn again, the crowd reduces both legs
There are two big flips. The pros bought back 1,62,000 calls and went from net short calls to net long in a single session, their second call flip in a week, so read that desk as trading the range and not carrying a view. The foreigners covered 35,000 call shorts but added 4,800 more futures short taking that book to about two lakh, and they sold cash in size. They are the one participant who did not turn. And the crowd finally sold almost 2 lakh calls, the biggest single day sale of the entire run, and covered almost 36,000 naked puts, the first reduction in four sessions on both the call and the put side. That book is down from 7.61 lakh to 7.25 lakh, so for now the crowd has reduced risk on both legs. And this is the cleanest absorption print of the month: the foreigners sold 5,040 crore of cash, the largest single day sale of the month, and the domestics bought 5,184 crore and absorbed it, almost rupee for rupee. Cumulatively the foreigners are now down just 454 crore for the month, a month of buying wiped out in one session, against 54,000 crore from the locals.
Chapter 7 of 7, about 1:34 of the 8:45
07The plan: buy the zone into an expiry with MSCI
The gap down opens near 24,090 to 24,120, right back at Thursday's close, and 24,000 to 24,100 is the strongest support on the board, 2.2 crore across those two strikes, with Friday's low at 24,076. That is your zone to buy. Max pain stands at 24,200, just above the spot into tomorrow's expiry, and the board wants it, the option chain wants it. The gamma flip level is 24,250 to 24,300, and above it the day compresses. 24,300 is the resistance with 1.3 crore calls written over there. The range for the day is 24,066 to 24,285. Risk case, Asia's weakness carries through and 24,000 breaks, and below it the crowd is still short 7.2 lakh puts. Riders: oil back above 90, gold broken, yields at 6.91, and foreigners selling in cash. Expiry tomorrow with an MSCI rebalance, so spreads only, volatility expected to rise, never naked shorting. And remember the breadth, one sector carried Friday, so we have to look at the broader market today.
