Nifty July performance

As we close out the July series tomorrow, here's a look at what traders did during the series and the values which developed.

Nifty July :

The chart shows that through the series the region of 5570 evoked the maximum interest amongst traders this July and maximum volumes were exchanged there.

This makes 5570 the fairest value for price or the region which holds max value for traders.In an ideal scenario the expiry should happen at this price or near this price.The upper level is represented by a VWAP at 5617. This region and above represents the point at which the expiry should not happen.Generally a Point of control below vwap means a seller dominated through the series and the expiry should favor the seller.

Bank Nifty July :

Whilst looking at the BN monthly profile we see price stretched or too far removed from profile lows or value. This means that the current lot of sellers in BN are not enjoying great value and the market can easily do a short covering number on them.

Value low is at 11176 whereas the best price for the series was at 11250 which is where the vwap and the point of control converge.

The most probable scenario would be for price to migrate closer to the best value tomorrow.

One day at a time

In financial markets, the past is history and the future is always a mystery.

Even though we have had a great month of March so far, it's pointless to brood over those results, as they will not help our trades tomorrow.I had a few traders who wrote to me saying that they missed this 270 point show, the market put up last week, despite being regular readers here.To them and to several more, the big question would be now whether the market continues it's uptrend or falls back into the previous bracket.

One day in a market cannot break or make a dominant trend.The idea is always to see continuation or rejection of a new move in the market, in the next session or two.

Let's look at the profile from Friday :

The lines in the chart are the different value areas, represented by price profile and volume profile methods. Whilst, as a blog and as traders, we are sound believers of the volume profile method and by extension auction market theory rather than the market profile handbook, on a day after the one on Friday, I would wait for the two orders to reconcile.

In an ideal situation for Monday, I would expect the market to consolidate the gains from Friday between 5652/42 and 5690.

Strength above 5690 should lead us to the high volume node at 5714 and maybe to 5728. I will be really surprised if the market auctions over 5728 tomorrow.If we do close up for the day I will still be strongly looking at 5800 before expiry.

On the downside, failure to hold 5642 will mean a dip to the large TPO's present at 5590. According to our statistics, a visit to the large TPO of the previous day can happen in 55 % of the cases. On Monday that will be possible only on a move below 5642.

After the profile gets completed tomorrow, we should have a better idea of the strength of the longer time frame player we saw in the markets on Friday.

One day at a time.

NAV Management

As many of you know, we treat the month of March a bit differently than most months purely because of the quarterly and the yearly window dressing seen in the markets over the past few years.

If you have been tracking this story alongside us from an earlier post we had mentioned on march 12th :

" I'll like to break the remaining part of this series into two parts, with the trend being mild to moderately bearish for the coming week and a shift to mild bullish as we come closer to the expiry week"

With the highs of the series being less than 12 points away ( current highs of the day are 5599), it's important to step back and look at where the futures are for the entire series.

We have noticed big volumes coming at the close and have not really been surprised at the gaps we have seen over the past 100 points.

NAV management will continue to be the theme for the remainder of the series.

Expiry for Feb

Over the weekend, Viren had posted an interesting chart about the Point of control for the series holding price down and a flat market for the week.

Unfortunately the profit for the straddle has been severely affected by a rampaging Vix which has put paid to hopes of a theta decay for most writers from last week.

But the importance of the chart for direction cannot be undermined.



The Vix range for expiry tomorrow is 5500- 5381 and the market should operate within that range tomorrow provided we do not have another 10 % bump-up in the Vix during the day.

The values developed for the series are 5385-5475-5553.

5475 has been a pivot around which most of the trading has been happening and attempts to break down below 5429 have been stopped by an adamant VWAP which has converted those moves into day lows right around there !

Very clearly fresh downward impetus will be below 5385 and upward bias will resume over 5553 for the month of March.

My charts indicate new shorts in march futures at current levels, could also be rollovers, and we would wait for price to confirm that downward bias.

For tomorrow, there is a 30 point trade above 5460 to consider, a 20 point trade below 5427 and a further 30 points from there to work out of.

Happy Trading.

Expiry

Viren here.

My current commitments prevent me from watching the market action in the way I love, the screen flickering every second in front of me.

Even though it's painful to see so many opportunities pass by, I take recourse in the next best thing I know.Swing Trade with Market profile.Actually Market profile is a great tool, if you want to trade options, especially if you understand the ebb and flow of market behavior.

With expiry next week and the markets coming off the resistance of 5577 and the support of 5370 close by ( All NF Prices ), I wrote the 5500 March Calls and Puts late yesterday for a combined premium of 312.

Let's look at the charts and see what is in store next week :



The chart has a volume profile chart for the feb series overlaid with delta at the bottom which is the net difference between the volume traded at the bid prices and the ask prices.Delta is the effective volume and can be used as a replacement for the combined open interest in options as well as futures. A positive delta is akin to new money entering the markets and the opposite is also true.

To explain the charts I want to use a similar style employed by Shai in an earlier post.

Point 1 : Lows of the feb series
Point 2 : Low of delta. Notice how delta stopped going down earlier to price.
Point 3 : A pause at the Developing point of control
Point 4 : Delta moves up
Point 5 : Price at Developing value high
Point 6 : is DPOC again
Point 7 : Point 7 is vwap at 5421 currently
Point 8 : Value low at 5385 . Support on closing basis.
Point 9 : Delta at the close. Much higher than point 4.

Inference : Price between VWAP and DPOC for the series as of the close on Friday. Upper break out levels ( VAH ) and Lower breakdown level ( VAL) clearly defined.

Bank Nifty :



1) The difference between this chart and the one posted above is that delta is net positive for the bank Nifty.
2) Price is above VAH
3) VWAP and DPOC at 10587 ( very strong support )
4) Green lines are the value areas.
5) even though delta came off on Friday, it is relatively higher than the open on Thursday.

Inference : Region around 10820 can be used as a stop n reverse for a move higher.

Back to the 5500 straddle :

1)The POC is the best time to write an option as price tends to rotate around it.DPOC is 5475 and hence the 5500 strike was chosen.

2) Exit of the losing leg would be a break of value either side.The position should be profitable by upto 15 % on Thursday if price hold up around 5500 and volatility does not increase much.

Have a great weekend.

Nifty Expiry- Jan

Generally, the end of any series carries with it a little excitement on where it would end and pundits are known to record the value as a future reference.

We at Vtrender do not give any more importance to the closing expiry price than the close of any one trading day, and the larger auction process moves on regardless.

But we do have a little calculator which helps us arrive at an approximate range for expiry many days before.

That calculator has calculated the range of Thursday's action to be 5625-5748.

Before we get into the Open Interest break-up, let's look at the longer term view of the Nifty Jan Future in terms of Profile structure for this series.



The purple zone is where the Market has traded 70 % of the time and it's chosen region to auction.

The price point of control at 5700 represents the pivot around which moves have been made and should be the same for tomorrow's session.

Profile by itself would indicate the region around 5700 as a fair settlement price for the series.

Let's shift our focus to the Open Interest at 5700 strike for Jan.

5700 Jan CE :



The table is for the Open Interest over the past five sessions here. It shows a reduction of -850650 units and a total OI of 5992500.

5700 Jan PE :



Reduction of -156900 here over 5 days and a prevailing build up of 5034800.

The picture cannot be complete without considering rollovers as well as the Open interest in Feb at the same strike

5700 Feb CE :



1666200 added and the total OI is 2516400. Most of it added in the past five sessions.

5700 Feb PE :



1371550 added against 3315400 as total Open Interest.The chart shows almost a 100 % rollover from Jan to Feb.

So Open Interest clearly shows what profile has been saying all along - that there is uncertainty or in the language of profile a balance prevalent in the current market structure.

I won't be surprised if we expire between 5700 and 5716.

Nifty Expiry

I had a query from Viren last week about predicting a range or a price target for expiry.

Whilst we do not really have good reliable software like max pain to get the correct expiry figure, I have found that some good old-fashioned Option arithmetic can help predict the closing price of the Nifty fairly accurately.

I had posted this information on a public forum earlier, so those who know it already, please excuse us, but for those who do not- have a pencil, paper and calculator ready.

I intended to do this post in the morning and even communicated to Viren a closing price of 5272 ( +/ - 10 points), but got stuck in my daily routine and when I saw the close, I had to leave everything aside and do this post.

Hopefully it should help you sort out the next one...

Here are the calculations. If you are good in options, you will have this figured out...Old schoolers like us used these maths to figure out if options were cheap or expensive.

We begin by looking at the VIX and the spot closing from the day before.

Step 1 : Look at the spot price from the day before ( 5225 )

Step 2 : Look at the Vix from the day before ( 18.13 )

Step 3 : Look at the days to expiry ( 1).You can do this any number of days before expiry.

Step 4 : Divide this figure from step 3 by the nos of days of the year ( 365/1 )
You get 365.

Step 5 : Take the square root of the figure in step 4 ( 19.10)

Step 6 : Divide Vix by 100 ( 0.1813)

Step 7 : Now divide step 6 by step 5.You get 0.0094.

Step 8 : Multiply step 7 by the spot price of step 1 ( 0.0094 x 5225 = 49.6 )

Step 9 : Add and subtract step 8 from step 1 ( 5175-5275)

Step 10 :Now let’s monitor the Open interest.

Since Nifty has closed at 5225, we will look at the open interest at 5200 and that at 5300.

5200 PE has OI of 6 million and the OI at 5300 CE is of 5.6 million. In view of this, we can forecast an expiry between 5200 and 5300.This also discounts the possibility of a move to 5175.

Aligning this view with our range from step 9, we can see Nifty at the upper end of the range.The high of the day was 5268 and the Nifty closed at 5260.



That's it. 10 easy steps to take expiry blues away.