01Cold open: bond yields rally across every curve
Yesterday the foreigners sold again. The rupee stayed above 96. And tonight government bond yields are paying more all over the world.
London. Berlin. Tokyo. New York. Yields climbing on every curve I am seeing.
Tomorrow Sensex closes its weekly book. Today is the day before that. One day to settle the bet.
This is The Tanmay Edge.
02Segment 1: global and commodities
Start with what is loud overnight. Bond yields. The American 10 year is at 4.67 percent, parked at a 1 year high. UK 10 year jumped over 1 percent in one session to 5.13. Germany 3.19 climbed almost 1 percent. Italy 3.98. Brazil 14.51. Even Japan, the cheapest money in the world, at 2.79.
When bonds pay more, equities pay relatively less. The math is simple. Foreign desks have a cheaper place to park money than emerging markets. That is the slow leak you have been watching for 3 weeks.
GIFT Nifty 23,445 down 120. Nikkei minus 1.18. Hang Seng minus 0.54. KOSPI minus 0.78, now down 9.5 percent across 3 sessions. Jakarta plunged 3.59. Wall Street ended Tuesday weaker. Nasdaq minus 0.87, S and P minus 0.67. Everyone is sitting on their hands until Nvidia opens its earnings book tonight US time. That is Thursday's mover for Indian IT.
Brent 110.51 slipping two thirds of a percent. WTI 103.36. Gold flat at 4485 dollars per ounce. Indian rupee closed 96.52, intraday high 96.62, central bank stepped in. Dollar index 99.36.
03Segment 2: cash and derivatives
Monday FII flipped to buyer with 2813 crore. Tuesday they sold again, 2457 crore back out the door. The flip lasted 1 day. The buyer didn't stay. Cumulative still minus 54,151 crore for the year.
But domestic desks did something interesting. DII came in with 3802 crore Tuesday. So when FII sold, DII bought the dip cleanly. Combined cash flow positive by 1344 crore. 2 desks. Different views. Nifty barely moved. Closed 23,618 down 31 points.
The professional desk did something I want to flag. Monday they were long both calls and puts at the same time. A textbook bet on movement, no direction. Tuesday at expiry settle they booked the call leg. 2.48 lakh net long calls came off the table. They kept the puts. Added 16,000 contracts more. Held the long futures stack at 31,000 contracts.
Long futures plus long puts is the same shape as a long call. The put pays for downside protection on the futures bet. Net delta near zero. Payout convex either way. The professional desk is paying for movement again, no side picked.
Foreigners on the derivative side stayed bearish. Net short futures stack widened to 2.16 lakh contracts. Long puts 4.27 lakh. Short calls 2.05 lakh. Three way bearish stack.
The crowd went the other direction. Net long calls jumped to 2.24 lakh, flipped from short Monday. Net long futures 1.55 lakh. They kept writing puts. Short puts position widened to 6.5 lakh contracts. When the crowd is this one sided, the market is going to punish them. And that day is today.
04Segment 3: levels and asymmetry
Now the part that matters today. Sensex closed 75,200. Tomorrow is Sensex weekly expiry. One trading day to settlement. At the money strike 75,200. The straddle at the money 870 rupees. Implied move between now and Thursday close about 1.17 percent.
Here is the asymmetry. The math behind options is not symmetric around this exact strike. Pull up the 75,200 row and the total options gamma number sits at plus 31. One strike below at 75,000 it is minus 321. Two strikes below at 74,500 it is minus 765.
In plain language. Below 75,200 moves accelerate. Dips get bigger. Bounces snap back harder. Above it moves get pulled toward the next big writer level at 75,500 where there are over 10 lakh open calls. Above the line you get pinning. Below you get fireworks. Today we are going to see some fireworks in Sensex.
Sensex sits exactly on this line right now.
For Nifty the picture rhymes. 23,500 put has the biggest open position, 4.94 million contracts. That is the floor support. 23,700 call has the biggest call position 4.96 million. That is the ceiling. 23,600 is the magnet in between.
One more thing and this is the tell. 23,700 put added 1.8 million contracts yesterday. Institutions paying for downside protection right at the ceiling. They are not picking direction. They are hedging both sides.
05Segment 4: sectors and screener
Sector tape. IT is leading. Yesterday IT was up 3.23 percent. TCS, Infosys, HCL, Tech M all green. The Nvidia overhang is being priced in. Mid cap IT and telecom up 2.33. Pharma defensive bid is holding. Realty up 1.43.
The other side. Private banks the weakest sector down 0.74. HDFC Bank, ICICI Bank dragged. Bank Nifty broke 53,500 which it had been defending for 2 weeks. Metals flat. FMCG flat.
The screener tape shows the IT basket, chemicals and mid cap select all on Strong Buy. Crypto continues to bleed. Bitcoin under 77,000. Ethereum at 2100. 814 million dollars in liquidation in 24 hours. The risk asset that bleeds first is usually the one that warns first.
06Segment 5: tanmay's read
2 things matter today. Bond yields climbing everywhere is a slow leak on foreign equity money. It explains why 1 day buying doesn't stick. And Sensex sits exactly on the math line, 1 day before expiry.
When spot sits on this line, you do not pick a side. You buy options because their premium is cheap relative to the movement coming. You play for the movement either way. Below the line, ride the dip down. Above the line, ride the bounce back to the middle. When the move stretches, sell the stretched premium. When the move pins, buy it back.
The keyword is hedge. Long futures, hedge with a put. Short futures, hedge with a call. The professional desk did this yesterday. Long futures plus long puts. Same shape as a long call. They paid for movement, not direction. We do the same.
For RupeeCase Nifty subscribers, the strategy is at 10.23 percent CAGR. Alpha plus 11.15 over Nifty. Next rebalance 26 May. Live performance and 10 stock basket at rupeecase.com. Free. No login.
07CTA close: two trades one magnet no side
That is the read for Wednesday 20 May. 1 day to Sensex expiry. Bond yields rising globally. Spot on the math line. Trade the movement, not the direction.
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2 trades. 1 magnet. No side picking. This is The Tanmay Edge. You just got earlier. See you tomorrow.