It is a commonly held belief that the expiry closing price acts as a support or resistance to next month's price and action.
The market action in the afternoon was expiry related and put a question mark on where we close tomorrow.However we have two parameters with us -the OI/Vix and Market Profile to see where we end tomorrow.
The range for the day tomorrow based on the Vix formula we know, works out to 5452-5342 on the spot and 5445-5340 in the future. This is just a range and not targets- the nifty should trade between these ranges tomorrow, based on today's vix.
Now let's see what Open Interest is telling us :
The 1.3 crore of unresolved OI at 5400 is a very large one and generally should point to a close right around today's closing levels.
This is the best scenario and also right in the middle of the Vix range of 5445-5340.
However the market is not known to spend an entire day auctioning in a 10 point range! It will push and pull at the OI writers at this strike to wean them off their positions.Frankly speaking the 11 lacs written today at 5400 call, one day before expiry is downright stupid and goes against my belief of writing calls.These guys would have been better off purchasing the 5400 put today, if their view was that bearish.
Let's look at what the volume profile chart says.
5386-5398-5421 are the value areas for tomorrow.
We already know that 5386 is a good support for the market and halted the downward momentum of the afternoon.If price manages to auction below this level tomorrow, then we get to the other end of the VIX range at 5340 and the 5400 call writers of today do not look that stupid!
However, should the Nifty hold value area low at 5386, then I've painted three yellow rectangles on the chart representing a low vol region which represents a chance for the market to auction there tomorrow.This zone between 5408-5428 should decide the OI at 5400 if it auctions for a while there.
The open should make things more clear..
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14 comments:
Dear Shai,
Thank you very much.
Nice write up Shai.
May be those 5400CE writers were writing to gamblers like me who were buying - expecting a 1:2 payoff if Nifty expires @5430-5440!
What's scary is covering of 12.6L puts in a narrow price range of 8-28 (WVAP of 17). In the last 3 days almost 23L puts @5400 have vanished!
It could be a fake move if Nifty expires above 5400 but if Nifty expires @your second target of 5340 then we may look back and say it was a smart move.
OI data:
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Nifty Futures:
July: 1.38Cr OI down 31% (62L shares cut from OI)
Aug: 2.1Cr OI up 40% (60L shares added to OI)
Total OI on D-1 in June expiry (June+July): 4.1Cr vs now 3.5Cr (July+Aug)
Banknifty Futures:
July: 9.2L OI down 34% (4.8L shares cut from OI)
Aug: 20.7L OI up 43% (6.3L shares added to OI)
Total BN OI on D-1 June expiry: 24.5L vs now 29.2L (July+Aug)
Girish,
Of the 23 lacs puts at 5400 which have "vanished", about 21 lacs have been rolled over to aug.
The vanishing act is actually at 5400 CE, where about 15 lacs has gone missing in rollovers from july to aug.Of course, the 1.2 cr at 5500 CE July has not been replaced too!
Hi Shai,
This is my first entry on your blog.
Greetings. I somehow have never been able to understand options.. let me try to understand...you wrote "Frankly speaking the 11 lacs written today at 5400 call, one da"y before expiry is downright stupid and goes against my belief of writing calls.These guys would have been better off purchasing the 5400 put today, if their view was that bearish."
when someone writes a call of 5400 - does that mean that they believe that market will not touch 5400? and buying a call of 5400 - does that mean that they believe that market will touch 5400?
Shai,
Good point. I see 15L has been added to 5400PE August in last 3 days.
I was just focusing on current series and not looking at August series.
All of yesterday morning I was trying to make a case for 5450+ expiry and the reason I had in mind was the calls disappearing at 5400 in this series. But with market dropping like a rock my hopes started fading.
I am still hoping for 5430-5440 but it could disappoint both 5400CE/5400PE buyers by expiring exactly at 5400!
@Janak,
Your comment - "When someone writes a call of 5400 - does that mean that they believe that market will not touch 5400? and buying a call of 5400 - does that mean that they believe that market will touch 5400?"
Yes this is true because on expiry day options are settled at index expiry price above or below the level (in this case 5400)
If Nifty (SPOT) expires at 5450 and the Call writer has written at 20 rupees - he would have to shell out 30 rupees to the buyer. If this expires at or below 5400 then call writer enjoys full profit and buyer loses all the money.
Girish, thanks. I believe that there are lot of factors in call writing/buying.....is it easy while trading online? so far, i've been trading NIFTY and STOCK futures only.
Hi Viren/Shai,
VA levels for 29th posted above are 45421-5398-5386.
I am using AFL code from this blog in Ami with Investbulls signal feed, Ami chart in 30min TF gives values as 5445-5435-5398 Your POC is VAL in my Ami.
How to get correct levels like yours.
Kindly respond
Bose
hi chandra
plz try setting in the parameters, the choice price profile / volume profile to volume profile.
you can open the parameter setting by pressing Ctrl+R or rightclick on chart and choose parameter.
hi janak,
u r at a very good site to learn ...
:)
Hi MOK,
GM & thanks for your support.
Bose
SGX suggesting open within range but out of balance obviously. as it was a dd day, we may see lacklusture expiry today 5380-5420 imp ref levels
Janak,
There are two aspects to options "buying" and "writing" which is another word for selling.
When you buy an option ( say a call) you expect the price to go up and will make money if so.
When you write the same option, you either expect price to do nothing or go the opposite way of a buyer of that option.In this case you win because of time decay.
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New post done.
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