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.