Orderflow

Trade the orderflow :

Copper :

Silver :

Crude :

Our trading room will be open tomorrow for the evening session between 5.00 pm and 11.30 pm.

Desi MO (McClellan's oscillator for NSE) at EOD 30th Aug 2011

FnO Datasheet - 29-08-11

"As I said, initially, next week is a shortened week. Remember further that we have had 4 continuous negative weeks. A moderately positive week is not an abnormal thing now, and may be the course of action to push out the week shorts."

a 200 point rally in Nifty can not be considered a moderate rally. :) I have been wrong in that. Still, considering the amount of fall we had in the last 4 weeks, this is not an abnormal thing.

My notes:

1. FII bought 45K contracts yesterday. Their net OI has decreased by 25K contracts. So, we can consider they have closed shorts to that extent.
2. Total NF OI has decreased by 10L contracts. So, shorts to that extent have been closed.
3. Volatility has decreased considerably. That resulted in option premiums being decreased.
4. I said that 70% of September OI has been rolled over in last 2 days. I had no way of knowing whether they are shorts or longs. Though OI increase with price fall indicates shorts in the system, Big institutions can hold on to their longs for considerable period and hence, they might be even longs. That is to say, FII bought longs @ 4850, NF falls to 4750, they still buy NF, so OI increases - but what we assume shorts are in fact longs. Considering the hypothetical explanation, I said, I changed my stand to neutral from bearish. However, today provided significant clues to the nature of OI. Today with price rise, and net buy By FII, the net OI has decreased. It means that it is short covering. So, we have to conclude that the huge NF roll over is shorts.
5. Now, by thinking that there are huge shorts in the system, even with a rally of 4%, only a tiny portion of them covered at EOD. FII 22K out of 5L, total 10L out of 2crore. So, I consider them to be weak shorts exiting.
6. Now, why there is no panic button pressed? There could be two possible reasons. Firstly, the bears have been caught completely off-guard and they are waiting for a pullback to exit, or Secondly, they know that this is a dead cat bounce, and market will resume its journey to south soon. Further action in the next few days will confirm one of them.
7. Remember, Institutions have been short from very high levels, 5700 from last month, and around 4900 this month, so a 100-200 point rally they can easily hold. Further, they will be making money by the written options, and the calls bought. So, do not get into a conclusion that a bottom is in place. Be bullish, but be skeptical.
8. You can find the entire data sheet here.

I request some feedback/interaction/participation from your end. That is what makes the notes sharing interesting and useful. It is not that I am seeking attention, but that is the minimum that we can do to encourage the blog owner, who willingly shared his space for all of us.

Desi MO (McClellan's oscillator for NSE) at EOD 29th Aug 2011

Nifty Road Map 29/08/2011

Nifty Future chart September Series :

Perspective : Our markets factored in no QE3 from the FED on friday and most participants played for a move lower. We however noticed a poor structure for the last 50 points of the down move. The US markets actually rallied on no news from the FED instead of tanking as everyone feared. The global markets from Asia are reconciling to that move in US markets this morning.


Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A new IPM from 4817 which will resist all upmoves
3) break of 5 day balanced profile is downwards.



Chart Speak :

- Balanced profile broken downwards.
- structure of the second part of Friday is weak and should be addressed today
- 4817 and 4890 will be resistances to all up moves.
-

FnO Data Sheet - 26-08-11

In the trading room, we were talking about

1. Volatility will be increased.
2. Hence Option premiums will increase.
3. Lot of option writing will happen.
4. Next week there will be a lot of premium decay due to truncated week and range bound movements.

First 3 steps happened, so let us look forward to the 4th step whether it happens or not. In fact all the trading room members wrote straddle in some form or the other.

My notes:

1. After a long time, FII net bought future contracts. They bought 23K contracts. Interestingly, OI also has increased by 60K contracts. Now, price fall coupled with OI increase generally means that more shorts are in to the system.. So, that is the first surprise.
2. We have to remember that, more than 70% of NF rollover (more than 1.5crore contracts) to September happened in the last two days of expiry - and with in the price range 4850-4900. Due to the nature of those days, where there has been a price fall, I assumed them to be shorts. However, looking at the OI increase today even when there has been net buying, I would like to change my bias from bearish to neutral.
3. For now, let us consider the zone of 4850-4950 as the deciding price band. If we happen to move above the price without alarming reactions, we will consider them to be longs - and we will change our stance to completely bullish.
4. Till that happens, I will continue to consider the OI as shorts in the system and base my analysis on that assumption.
5. As I said, initially, next week is a shortened week. Remember further that we have had 4 continuous negative weeks. A moderately positive week is not an abnormal thing now, and may be the course of action to push out the week shorts.
6. One of the things that we have to remember is - any rally now, will have effects in two folds. Firstly, to push the week shorts out of the system, and secondly, to decrease the option premium - so that Institutions get benefited from the option writing. So, any rally towards 4950-5000 will not create abnormal reaction in the institutions - as that will make significant returns on their option writings. Only beyond 5050, will the true bull rally will start.
7. So, will the shorts find themselves in a hole? Not the wise ones. And as a matter of fact, the wise ones never find themselves in a hole. As we repeatedly say in our trading room - "Bulls make money. Bears make money. Only the pigs get slaughtered!"
8. You can find the entire data sheet here.

just on lighter side..

nov10-august11 sale period at 25 %..is it over?

6330 - 25 % = 4747 exact

will FIIs happy with 25 % Flat?

Nifty ka Funda (1999-2011)

Desi MO (McClellan's oscillator for NSE) at EOD 26th Aug 2011

Will Nifty shorts find themselves in a hole monday morning?

Nifty cracked nearly 2% today. The intensity of afternoon selling suggested that sellers were not expecting anything good to come out of FOMC meeting at Jackson Hole today. Bernanke spoke about 3 hours ago and within 10 minutes most markets were down. Nifty had already closed by then so I am talking about S&P, Bonds, Meat, Copper, Crude.

Just after initial nervous selling, a short squeeze began in nearly every tradeable commodity out there. S&P went up to 1176 after failing to break through 1136 level. As of this moment, almost all of above markets are yet to prove that bearishness is over but the intensity of buying is amazing. Its almost as if Ben had to simply show up and finish his speech for trading rooms across the world to go into a buying frenzy! Check the charts yourselves. Visit finviz.com or forexpros.com or any of the million charting sites.

I just checked broad figures of FII selling and buying at NSE today. Yes, FIIs were selling again in cash today but DIIs bought more on net basis for a change. In futures, FIIs were net buyers. So who was selling and to whom and why? Were these retail investors or did DIIs try outdoing FIIs in shorting? Today's sellers may just end up facing a wall of gap up open on monday morning. Market may come back down eventually but leveraged sellers could have a tough time. Can't wait for monday morning now!

OrderFlow Gold -2

Just as a quick follow up to yesterday's orderflow charts posted in the evening.

The gold sell call was reversed at 5.30 pm and is currently up 1000 points in less than 1 full session.

The silver sell call was also reversed around 6.00 pm yesterday and is currently up over 2750 points.

I will post a screen shot of our trading room tomorrow.

Nifty Road Map 26/08/2011

Nifty Future chart September Series :

Perspective : All eyes will be on Fed meeting later tonight and larger longer term participants can be expected to remain on the sidelines today as they wait for the decision. In a low confidence environment, it makes sense to remain on the sidelines, till a clear picture emerges.The larger market is in a sideways consolidation mode.


Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.



Chart Speak :

- Balanced profile yesterday within a 5 day balanced structure
- prominent POC at 4866 may stall movement in the initial part
- 4898 is PR1, above which the market turns up for 4932/ 4967
- 4830 is PS1, below which the market may move to 4795.

Desi MO (McClellan's oscillator for NSE) at EOD 25th Aug 2011

OrderFlow Gold

In one of my previous posts mentioned here, I had made a point that Gold was a parabola and parabolas do not last.

The reasons may have been different, but it was obvious that a big break would come which would send retailers scurrying.

Gold has sold off 2000 points in the last session and a half.

Fortunately for us, our OrderFlow caught the entire move, right near the top.

There was another big one in the other metal- Silver. This one has fetched about 4000 points so far.

I have mentioned several times, that the system of following the buying and selling of the market, is the best indicator of future prices.

The charts above testify.

FnO Data Sheet - 25-08-11

My notes:

1. The two day rally is over. Today is the day when 4900PE writers are made to run.

2. Today has been a very important day for the September series. Huge rollover happened in September series, both at FII level and Nifty Future in total. FII have rolled over 1.2L contracts have been rolled over today. Nifty August Future OI has decreased by 26L contracts, but most important number is 68L contracts have been rolled over to September today. OI increase along with price fall generally indicates shorts entering the system. But we will try to follow them as very high volumes operating at 4900 level.

3. 4900PE and 4900CE both of them have OI to the tune of 40L contracts each, not high compared to average OI. However, 4800PE and 5000CE are having higher OI. Further it is interesting to note that, 4800PE has added OI of around 35L contracts in the last 2 days itself. And, I did not find FII writing too many options in the last 2 days. Who has written those puts is anybody's guess.

So, I am completing one full series of data compilation and notes today. Hope it has been useful to you. I request your feedback and comments on improving data presentation and/or notes writing.

You can find the entire datasheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 24th Aug 2011

FnO Data Sheet - 23-08-11

This is what I wrote in my Friday notes. "Probably a short term rally might materialize in the first 2 days of next week.

6. With high VIX and high premium on the put side ( 4900PE is priced at 95 - indicating 50point premium), probably next week might belong to grind where option premium erosion with time decay might be the theme. A surprise rally towards 5K for a scare to the uncovered call writers at 4800CE and 4900CE might be a route considered by Institutions."

Well, here we are at 4950 - On Tuesday evening.

Here is my notes:

1. 4800CE writers closed to a large extent. There is writing at 4800PE,4900PE,5000PE, 5000CE, 5100CE. Writing happening in the last two days of series - not really smart thinking.

2. Huge Short covering happened in Nifty Futures. Approximately 40L contracts are closed today. So, today's rally is more driven with short covering than genuine buying. Short covering makes the market go up, but it weakens the market as well.

3. FII bought 20K contracts today. However, their OI has decreased by 7K contracts only. So, they did not cover the shorts in bulk. Further, the turnover today has been on the higher side. So, they did a lot of day trading.

4. On the options front, finally there is some reduction in the OI today. The profit booking at 4600PE is probably a result of this. I said on 10th August, FII hold huge option written positions and we may be in for grinding with volatility. At that time, 4900PE+5200CE together costed 240 points. At the trading room, we have sold the straddle. Today, the straddle is 28 points. 200+ Point profit in 10 days.

5. This series initially has been quite painful for the writers. You can see that the maximum OI at any level did not cross 70L at any time. In July, the OI has crossed 1 crore at 4-5 strikes. That indicates the fear gripping the option writers. However, the big institutions did make money on writing as well due to the high volatility.

6. So, finally where do we expire? 5000CE has the highest OI at 70L. 4800PE has highest OI at 59L. One of them will face the heat. Look out for tomorrow. If NF crosses and sustains above 5K, we may reach Vinod's 5110. Else, RM's 4765. :) Any way, the numbers are for fun. I do not believe in making predictions in Numbers. I try to only guess the direction and intensity of the move.

Watch out, such an activity filled month may not go into history with a tame end!!

You can find the entire data sheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 23rd Aug 2011

Intra day OrderFlow

Here are the intra day charts for NF and BN.

Nifty august future :

Bank Nifty Aug Future :

Volume precedes price.

With NF at 4920, the volume OrderFlow showed short covering and a target of 4992. Now just 20 points away.

Nifty Road Map 23/08/11

Nifty Future chart August Series :

The post got delayed today. Hence posting a short summary from the post at Vtrender-2.



Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.



Chart Speak :

- poor highs
- failed auction at 4816
- structure not strong with a dpoc at the bottom indicating short covering rather than genuine buying.

FnO Data Sheet - 21-08-11

Another high volume day. As expected in Friday's notes, a rally took shape. We are just 3 days away from expiry. Series expiry generally brings more pain to the people who are already in pain. This month, bulls are in pain - does the expiry bring more pain? Or, do we rally for the last 3 days so as to inflict maximum pain for maximum people? Let us see.

My notes:

1. FII have sold 25K contracts today. What is interesting to note is that, the OI has decreased by 14K contracts. This is interesting because, we know that FII are carrying shorts in the series. So, when more contracts are sold, OI has to go up. However, OI has decreased - that too with price rise. As per my understanding, it means that, whatever longs are carried by FII, they have closed them to some extent. So, in effect up to 39K contracts of longs are closed. The OI for FII is inclusive of all months, so it rules out rollover.

2. PCR has reached the bottom end again, 0.91.

3. FII stats indicate 30K contracts of options writing. However, the OI in options has not changed. It indicates, they have closed some of the written options. Now, in the option table, there is significant covering at 4800CE, 4900CE and 5000PE. So, one side is closed by the FII and other side is closed by weak hands. I mean, if call covering is by FII, we may have more rally in hand, but weak longs have closed. The converse is also possible. Tomorrow might give us the clue.

4. Nifty Future OI has decreased by 15L contracts. Decrease of OI when price is rising, is not a bullish sign. According to my understanding, it is weakness creeping into the system.

5. For me, the defining observation comes from the equities. So far, in this series, FII have sold equities worth 10140 crore. DII have bought equities worth 7600 crore. I am assuming the remaining is bought by retail because DII includes all Indian Institutions. If you go a bit deeper and observe, the difference between FII selling and DII buying is getting more pronounced in the last 2-3 days. The first large difference came on 9th August, when the difference is around 1000 crore. That day, nifty was at psychologically important level of 5000-5100. The difference is becoming pronounced again in the last 2-3 days where nifty is at another important psychological level of 4800.

Let me put my hypothesis before you. The retailers are playing for a bottom at these important psychological levels. First at 5100 levels and secondly at 4800 levels. So, there is some portfolio buying happening at these levels. However, history suggests that retailers seldom catch the bottom correctly. For me, it indicates that there is still more downside left. I am not speaking about this series or next series, but in general. Well, it is easy to argue that I am bearishly biased. But still it does no harm for all to be taking extra precaution.

You can find the entire data sheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 22nd Aug 2011

Profile charts for 22nd August

Nifty Future chart August Series :

Perspective : 4 sessions to expiry left, and we are seeing put writers on the back foot from 5700 levels. Generally in such environments, the offensive party ( call writers) end up putting the losing party ( put writers) on the mat and we see an expiry at the lowest point of the series.

Global markets may also be eyeballing the FED meet, where the market is expecting QE3 to stem the rot.



Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.



Chart Speak :

1) A gap on charts between 4903 and 4930
2) Profile is balanced indicating buying and selling efforts.
3) Prominent POC at 4850 may act as a magnet again for price.
4) Breakdown below 4790 PS1 levels.

FnO Datasheet - 19-08-11

" Institutions have shorted big time in this series around 5480 levels, and they are comfortable for any rallies below that. The grind here, is beneficial for them because of their option writing. Once, they start covering options written, we might start the trending move again. Whether we fall deep or not is debatable, but for me the upside looks capped for this series."

This is what I have written in my last notes. And two days later, we are 200 points down in the Nifty Future.

Here is my notes:

1. There is huge short covering in the Nifty Future - around 10L contracts. FII also net bought in Index futures. They bought 16K contracts and their OI also decreased by 12K contracts, indicating they have covered shorts.

2. Volatility has risen again to 29.19. Probably, grinding will resume ensuring time decay of all the premium in both puts and calls.

3. The OI in Futures has reduced - however, the OI in options has increased by 2L contracts. A lot of option writing happened today. Probably, FII are playing for the weekend time decay.

4. As we approach the expiry week, it is very surprising to observe 21L options written at 4800CE. Probably, some of these might be covered calls. 4900CE also has added 21L contracts. In a highly volatile month, writing options at such high volumes with 4 trading days remaining, has to be looked at with eyes of suspicion.

5. Desi MO is at a very high -99. And there is a price divergence building up. Probably a short term rally might materialize in the first 2 days of next week.

6. With high VIX and high premium on the put side ( 4900PE is priced at 95 - indicating 50point premium), probably next week might belong to grind where option premium erosion with time decay might be the theme. A surprise rally towards 5K for a scare to the uncovered call writers at 4800CE and 4900CE might be a route considered by Institutions.

You can find the datasheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 19th Aug 2011

Yesterday Shai pointed out the divergence building up between Price and McCllelan's Oscillator. A zoomed up view of today's chart shows it clearly.

Desi MO (McClellan's oscillator for NSE) at EOD 18th Aug 2011

Nifty Road Map 18th August

Nifty Future chart August Series :

Perspective : With 6 sessions left for expiry ( including today) , the focus shifts from the external to the internals.The cues will be from Option Open Interest as option writers take center stage. Follow the Kris commentary to get up to speed on what the market is doing with option and future volumes.

Option Open Interest is another form of "volume at price"- another name for Volume profile analysis.



Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.



Chart Speak :

1) Yesterday was a Neutral day ending at the day's developing point of control.
2) Failed auction at 5014
3) 2 day market is in balance also
4) Inside day yesterday.

FnO Datasheet - 17-08-11

On 9th August, Nifty Future closed at 5083. On 10th August, I noted this in my remarks column in the datasheet: "We may not rally violently - the VIX is still very high - and FII hold a lot of option open positions - so, we may be grinding on with volatality."

Well, here we are, on 17th August, we closed at 5066. We moved 17 points.

At the trading room, there has been a consensus that we are in for grinding. All of us took positions at different strikes, but with a consensus that volatility will come down. The theme being writing one call option and one put option. On 9th August, 4900PE+5200PE together costed 240 points - and yesterday it is 53 points. So, when Nifty made a movement of 17 points, the gains were close to 180 points. That is what our trading room can do to you!!

My observations regarding the series:

1. Yesterday, there has been a genuine short covering of 10L contracts in the NF. FII also covered shorts 8K contracts. We need to see if the short covering happened at the upper end in the morning or at the lower end in the evening. Today's action might provide clues.

2. PCR is at a neutral 1.05. I will not be surprised if there is further grind on.

3. In each of the last 4 days, we had a big range intra-day and at the end, the longer term picture did not change much. In effect, Institutions have been trading intra-day without effecting the longer term picture. Observe the Open Interest position of FII in both options and futures in the data sheet. There is negligible change in that.

4. Though, we are grinding here with an occasional rally, it is important to note that, FII did not cover much shorts in the series. My guess is we are in for a capped-upside this month, with some red-days towards the end of the series.

5. Remember, the people in pain, will be subjected to more pain during expiry. So, this month, bulls are in pain, and there might be more pain for them around expiry. For this assumption to change, look for short covering in huge volumes in the FII OI figures.

6. Institutions have shorted big time in this series around 5480 levels, and they are comfortable for any rallies below that. The grind here, is beneficial for them because of their option writing. Once, they start covering options written, we might start the trending move again. Whether we fall deep or not is debatable, but for me the upside looks capped for this series.

I hope you have been following the datasheet. Though I was not able to write the notes, I have been updating the datasheet on a daily basis. You can find it here.

Desi MO (McClellan's oscillator for NSE) at EOD 17th Aug 2011

Auction Market theory on Orderflow

In my previous post on OrderFlow, I spoke on the importance of buyer and seller activity in the movement of the markets. Logic dictates that the market will continue going up till there are more buyers than sellers and will start going down when sellers overpower buyers within the day.

Hence the proper trade would be to be with buyers when they are long and with sellers when they are short. Anything other wise will put your bias on the opposite side of the market, not really a healthy situation for our accounts.

This is also called Auction market theory. 99 % percent of individual retail traders, do not have a clue of how this principle works and get whipped around in the markets especially in intra day trading.

Order Flow helps us to level the playing field against large institutional desks, hedge funds, high frequency traders and their like by spotting their presence , actions and intentions.

I maintain again, tracking supply and demand, measuring the actual buying and selling transactions of the market is the single best predictor of future prices, therefore using order flow is the best path to consistent profits in trading.

I leave you with today's Nifty charts :

Desi MO (McClellan's oscillator for NSE) at EOD 16th Aug 2011

Today's OrderFlow

Nifty :

Copper :

Gold :

Amongst the better Inter market relationships we track is Gold/ Equities and Copper.

Gold Up = Copper down = Equities down.

Profile charts for 16 th August

Nifty Future chart August Series :

Perspective : On Friday afternoon, before our markets closed we had profiled the SPX, which was a market trying to establish balance.We did say that the overnight cues from that market would influence our open on Tuesday.

On Friday, whilst traders on the NSE chose to close their long positions, the traders on the NYSE chose to retain them and the market showed short covering on Monday.

It remains to be seen if the overnight gains in our market can last beyond the IB hour or we see a repeat of the moves of the SPX.The SPX chart is below :

SPX Cash Market :

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A failed auction at 5233


Chart Speak :

1) Friday was a Double distribution ( DD ) day.
2) We consider a DD to be two separate auctions.
3) Overnight sentiment based on SGX is long and shows an open in the upper distribution.
4) 5185 is PR3 for the day. PR2 at 5143 will be first sign of weakness till 5100.

Independence Day Wishes

Vtrender Wishes you all a Happy Independence Day !

Desi MO (McClellan's oscillator for NSE) at EOD 12th Aug 2011

SPX profiled

As we head into the weekend, most traders with open positions would be nervous about overseas markets, with the kind of news hitting our open prices.

Need to be careful , as those markets are moving 3-6 % on an average everyday. With 2 full days lost before we open next Tuesday, it's enough to make any trader with a position nervous as he looks forward to the open on Tuesday.

Here's a look at the Profile chart of SPX in the cash market.

We discussed this trade in the morning on how a move below 1157 would bring 1145 which is the POC of yesterday. With the /es currently at 1160 ( 1.52 pm) the buyer at 1145 is playing out his hand.

The broader profile is sideways with buyers below and sellers above.

FnO Datasheet - 11-08-11

As expected, a range bound day. Not much activity is seen in equities as well. Here are my notes:

1. A flat day. Though the trading volumes are high, not much changes are visible either in the FII activity on Nifty Future OI. It is a pause day before both the bulls and bear camps plan their next course of action.

2. As said in the earlier posts, very high open interest in options for FII, and they would want some time decay to happen in the option premiums.

3. Having said that, the VIX still at a very high level, commanding high premium for options on both puts and calls. With only 10 trading days left in the series, time decay would accelerate in the options.

4. One of the interesting observations for the day is ... PCR at 1.27. The increase in PCR does need attention. It indicates more put writing is happening at all levels. As observed in the trading hours, the premium in puts decayed by 15-20% today. May be tomorrow a rally might ensure the put premium decay to be complete.

5. Do not get complacent with longs. Remember, smart money is short from levels above 5480 and they have a lot of cushion. They might induce a small rally for the weak shorts to cover and resume their activity. The steep increase in PCR without a corresponding meaningful rally is leading to this suspicion. As Shai says, cheap puts are never good for bulls.

You can read the complete datasheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 11th Aug 2011

Make lazy money from Nifty put options

I got the idea of this from a book that mentioned that portfolio investors like to buy 10% out of money options (OTM) for hedging their portfolios. It got me thinking:-

• Isn't 10% way too much out of money?
• Will this money used for hedging not get wasted?
• Is it worth the trouble?

Instead of checking the fact, I just went ahead and bought five 5000 strike Nifty puts on 1st August' morning. Nifty kind of crashed after that so I booked at 900% profit on monday, just one week later. Today I mentioned the fact that I made 10 times my investment (Rs 20,000 made on Rs 2,000 invested) at Vtrender trading chatroom. My good friend RM from the trading room discussed the possibility of testing the strategy of buying deep out of money puts as a money maker. Now RM is good with scripting and logic but the task is quite complicated because it needs lot of data crunching and scripting. So we decided to put away the testing of this strategy few days away.

However, being impatient, I decided to do a quick-and-dirty testing first and simplified the task by using a few simple rules to find out payoff of this strategy. Boring assumptions are at bottom. Interesting results are right below.

1. Out of 53 months, OTM puts struck money in 3 months. In rest of 50 months, they expired worthless.
2. A total of Rs 3,40,280 (Rs 3.4 lac) was invested. On avg Rs 5970 per month.
3. Total payoff was Rs 5,68,200. That means a profit of Rs 2,27,920.
4. Profit is 67% of investment!
5. On a per month basis profit is Rs 4000
6. To make a similar return from 9% FD, you would have to invest Rs 5,33,000 on 1st Jan 2007 upfront. I don't want to go into calculating the two strategies on NAV basis but I am pretty sure OTM put strategy is giving almost twice return compared to 9% FD. Those who would like to keep their FDs could put their FD interest every month into this strategy and get win a lottery every 17th month or so.
   
7. Negatives of this strategy: Who has patience to wait 17 months before striking paydirt! This return is not fantastic; I want to make 10% every month! This is like a lottery!
   
8. Positives other than returns: If you are an investor in equity market and are holding these puts the day Nifty crashes and hits circuit breaker, you will thank me and thank god. In that order.
   

While the strategy made intuitive sense to me it right away, it seems profitable even when applied mechanically. So go ahead and hedge your longs. Your money will be returned back to you by market automatically. All you have to do is buy ten (maybe 100) 10% out of money puts on 1st day of every new series in Nifty options and hold till expiry. Don't think, don't act after that! Of course if you think you can outguess the market, go ahead and make some variations. Make it your own!

Boring Assumptions:-

• Period used 1st Jan 2007 till 31st July 2011. For those of you thinking this strategy may not work prior to that period because Nifty was in a strong bull market, check out months of May 2004 and May 2006. This strategy would have rained money in those months too.
  
• Day of buying of put options changed from first day of series to 1st trading day of calendar month because did not have patience of plugging in 57 dates carefully into my spreadsheet.
• Day of selling of option similarly changed to last trading day of calendar month.
• Option strike assumed to be rounded down figure 10% below closing price on 1st trading day
• Cost of options assumed to be 0.12% (on 1st August cost of option was 0.10%) on average.
• Brokerage cost assumed to be Rs 100 per option both ways.
• Options are not encashed at any discretionary level. Assumed to automatically expire at closing price of last trading day of calendar month.

Money flow in Gold/ silver

First an OrderFlow chart of Silver traded on the MCX which reversed the sell signal yesterday, printed a buy and gave us 2000 points in the process.

Currently it is back to sell mode. So Silver traders please note.

and just to add to my rant yesterday on Gold, here is a chart showing commercials selling into strength. The Gold ETF is top of the list.

You can track Money flow from this site here

Profile charts for 101th August

Nifty Future chart August Series :

Perspective : Same as yesterday- The bounce off the lows yesterday nearing 200 points, RM's wonderful charts of the MO which are displaying extremely oversold values, seem to be indicative of a bounce in store. Generally such counter reactions tend to be violent, and if the lows hold for the next two days, we should rally by 6-10 % over the next 4 weeks.

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A failed auction at 5233


Chart Speak :

1) pr2 at 5078 and pr 3 at 5044 are supports for the market today
2) resistance seen at PR1 5182.
3) 5050 zone is an important base for the market to hold.

FnO Datasheet - 10-08-11

Today has been an opposite of the recent days. We were getting gap down opening, and moved up in the recent days - today we gapped up and moved down today. Again, a high turnover day. Here is my notes.

1. FII have bought 58K contracts today. However, there is no change in the OI at all. I am assuming they closed shorts to that effect.

2. PCR has reduced a bit to 1.16. VIX is still at a very high value of 30. So, I am expecting volatility to come down in the next few days.

3. Nifty Future has shed huge OI today. Around 10L contracts reduction in OI. I assume it is profit booking by shorts.

4. FII have huge open positions in Options - a lot of option writing happened. As expected the other day, we may move around here with some volatility on both sides to reduce the time premium of options. I will not be surprised even if we spend the entire series in the region of 5000-5240. ( 5233 to be precise - where we have a failed auction, and might make a visit there before this weekend.)

You can view the entire data sheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 10th Aug 2011

Runaway Gold

First the OrderFlow charts of Silver, which is the newest addition to our MCX trading room.

We had a sell signal yesterday, which returned 2200 points !

Now for some longer term references.

In one of my earlier posts, exactly a month back, I had posted a chart with Gold then around 1520 and projected new highs for the year.You can find that chart here

At that point , I had projected 1800 as a target for longs.Well we have reached 1782 on the COMEX and even I am surprised as the fact that we are there in one month!

But what is more surprising is the way in which retail traders are jumping on the gold bandwagon, ready to take a ride to their "city of dreams". Newspapers , TV channels( not of the business kind) and gossip magazines seem to be discussing this newest investment find.

I'm scared for the small trader who is jumping aboard now, egged on by investment banks and brokerages who are promising more ahead. It's a different matter that none of these people talked the high numbers when Gold was actually bottoming.

Let me take you to another chart in the commodity space

Most Silver investors would remember the big move of silver which doubled in price in 3 months. Quite a few of them are still waiting to exit out of their losses now.

What happened with Silver earlier will repeat now in Gold.

Folks, parabolic moves never last. Markets do not remain stretched.That Silver Order Flow chart posted above is a great indicator to the divergence at play in Gold- Silver today.

I told my trading room earlier, that I want to have none of the next 50-100- even 150 point rise from here, because the fall will be very painful. There are plenty more other swing opportunities in the market to look at !

Profile charts for 10 th August

Nifty Future chart August Series :

Perspective : The bounce off the lows yesterday nearing 200 points, RM's wonderful charts of the MO which are displaying extremely oversold values, seem to be indicative of a bounce in store. Generally such counter reactions tend to be violent, and if the lows hold for the next two days, we should rally by 6-10 % over the next 4 weeks.

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A failed auction at 5233


Chart Speak :

1) The last failed auction at 5388 produced a new initial price move ( IPM) which took the market to 4950.
2) Strength above this recent failed auction at 5233, will be a new IPM.
3) Longer time frame buying from 4950 to 5010
4) Today will be day three for the FA point of 5233.

Desi MO (McClellan's oscillator for NSE) at EOD 9th Aug 2011

NF OrderFlow

This message was posted in the trading room at 9.18 am, when all expected the market to flush down :

[09:18] Shai C: big covering happening

And then a few minutes later when more clarity came, this was posted at 9.34 am.

[09:34] Shai C: I feel 5200 can also be done today

We have done 5155 and not yet made it to 5200, but ORDERFLOW never lies.

Here is the chart with the buy signal :

FnO Datasheet - 08-08-11

Action repeat of all the earlier days. Huge gap down - market recovers for the entire day. An additional aspect for today is market fell back from the highs towards end of day.

Here are my notes:

1. Another 1.5% fall today. VIX has risen to a whopping 29 before reconciling to 26. The sell-off towards the close increased VIX again for a close at 28.5

2. As expected by CS in the trading room, FII did day trading today as well with high turnover. Their net buy of 5K contracts did not alter the OI picture. Their OI increased by another 18K contracts - further shorts?

3. Nifty Future OI has increased by 5.5L contracts. So, market cycle continues. My observation is - Institutions short - Big Bears Short - Market Falls - Big Bears Cover - Pigs Short -Institutions Cover - Market Rallies for the Pigs to get slaughtered. :) From the first impression, looks a lot of pigs shorted the market on S&P downgrade news.

4. Today is another day where we went long in the trading room from 5080-5100 range and booked from 5180-5200 range.

5. PCR has risen to 1.16. Significant increase from the lows of 0.9 earlier. The put writing is not concentrated at one strike price but scattered in the lower end from 4800-5000PE.

6. Another of my observation is.. PCR below 0.9 and above 1.3 lead to trending moves, and in between leads to range bound markets. So, after all the mayhem, we are probably returning to sanity is what is indicated by the rising PCR.

7. Last 2 days, FII traded heavily in options market. They bought and wrote options in huge quantities. This is another reason why I am suspecting a range bound market now. Remember, they are short from 5600 range - and have made the money. Even if market rises by a couple of hundred points also - they will not go into loss. So, my assumption is they will not cover the shorts in a hurry - but are playing for a range bound market by dealing in the option segment actively. Their put writing ( PCR is increasing) and call buying against their shorts will lead to extended profits for them.

8. Desi MO indicator crossed a century - price is below the lower end of bollinger band - market is extremely pessimistic -so be prepared for a short term bounce. I do not recommend buying of options at this moment, because the volatality and hence the premium of options is very high. So, it is difficult to make money even if the market moves in our expected direction. Deal with futures or option writing for some days. If it is a must that you have to only deal with buying of options then resort to day trading. :)

You can find the datasheet here.

Desi MO (McClellan's oscillator for NSE) at EOD 8th Aug 2011

Observations:

• Weekly Virgin POC @ 5044 from week ending 11th Jun 2010 almost touched
• Declining Volumes show a slight turnback though Indiavix is going full throttle
• Broader markets have shown no improvement with A/D still at 250/1221
• Desi MO has scored a century to entertain the cricket fans. :)

AA + from S&P

First an updated Order Flow chart of the Nifty.

OrderFlow loves volatility and we picked some good coin from NF/ BN and even LT post earnings announcement.

We got a sell for the earlier buy and the day closes in the middle with no new short positions created today in the futures space.

In my perspective note on 15th July, I had made a point that these rating agencies need not be taken seriously by market participants.

My reasons again :

1) There are three of them and it's today a game of 1 against the other 2 ( Moody and Fitch) which still maintain the same rating. Are we speaking about the same economy here?

2) Back in 2007 this same agency made all mortgage backed securities AAA. Post Lehman, the world saw how good a job they do when they actually rate!

3) Ben runs a printing press and hands out money to the markets which go by names of QE1/ QE2 etc. Even if the entire world sends all the debt back to the US, they will pay them back in their own currency, printed in their own backyard !

4) The downgrade reasons are based on " political wranglings". It amazes me how political reasoning can be given when drawing economic agenda especially by an economic agency.

All in all, we will get a big rally out of this, not just in our markets, but in global equities.

There are technical reasons for the same also, but we will discuss in another report.