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.