01Cold open: then, overnight, the world ripped
A very good morning, guys. At 3:30 yesterday the Sensex expiry settled at 73,832, the cushion at 73,500 held by 19 points, and the board went quiet for the week. Then, overnight, the world ripped.
Korea up 7.77 percent in a single session. Japan up 3.8. The Nasdaq bounced two and a half percent. And GIFT Nifty is pointing at a gap up of roughly 250 points, straight into the ceiling our option sellers spent two days cementing. One desk walks into this open short 2,67,000 futures contracts, with a weekend to carry. This is The Tanmay Edge, episode 59.
02Scorecard: eP58 graded 3.5 of 4
Episode 58 graded 3.5 out of 4 gradeable calls, the 73,500 cushion held its first test by exactly 19 points. Full scorecard on rupeecase.com.
03Thursday's tape: the cushion script, then the trap
Expiry day followed the cushion script. We opened at 73,616, tested 73,519, held, climbed to 74,394 by lunch, and then the last two hours got sold, 560 points, to settle at 73,832, between the cushion and the magnet. Nifty drew the same shape: low 23,072, high 23,327, close 23,161, down 53.
The index looks calm. Underneath, it was anything but. 992 stocks advanced, 2439 declined. IT dropped 1.6, Infosys down 2.7, because Wall Street's tech wreck was still echoing. Banks held flat, ICICI up 1.9, Media popped 1.8. The rupee slipped to 95.76, its weakest in over a year. Volatility slept through all of it, VIX at 15.6, dead flat.
04The desks: day five, tip toeing
Same twist as all week, fifth day running. The foreign desk covered about 5000 contracts again, under 2 percent, and stayed net short 2,67,000 index futures. Off their peak of 2,77,000 on Monday they have released barely 10,000. That is not covering, that is tip toeing. They sold another 2249 crore of cash stock on top.
The domestic institutions bought 4365 crore against them, the twelfth straight buying day. The proprietary desks are nearly flat in futures, around 11,000 long, with options stacked on both sides, paid if the market moves big either way, no view on which. And retail is still long 2 lakh futures and short 7.7 lakh index puts. That is the table everyone left on Thursday evening.
05Overnight: somebody flipped the table
The Nasdaq, which spent two days wrecking our IT stocks, bounced 2.54 percent. Seoul went vertical, up 7.77 percent in one session. Tokyo added 3.8, Taiwan 2.6, Hong Kong 1.5. Crude cracked under 90, Brent at 89.25, the war premium fully unwound.
And GIFT Nifty sits near 23,478 against our futures close of 23,200. That is a gap up of roughly 250 points, an open somewhere near 23,400.
06The board: a ceiling at 23,500, a springboard at 23,200
The sellers spent Wednesday and Thursday cementing a ceiling above us. At 23,200 they added 27 lakh fresh calls just yesterday. 23,300 holds 58 lakh contracts, 23,400 holds 54, and 23,500 is the biggest block on the whole board, 72 lakh written calls. The gap clears the first two shelves and lands inside that ceiling. Underneath, the put writers marched up: 26 lakh fresh puts at 23,100 and 24 lakh at 23,000, which now holds 70 lakh, the foundation. The box reads 23,000 to 23,500, and the world just shoved us into its top floor.
One line matters more than the rest: 23,200. That was the lid all week, and a gap through a lid turns it into a springboard. As long as we trade above 23,200, the options machinery absorbs moves and the day stays orderly. Back below it, the same machinery speeds the fall. And 23,500 is the test of the day, because 72 lakh written calls do not step aside politely on first knock.
07The plan: three steps
One, if the first 30 minutes hold above 23,300, you buy the dips, not the pops. Dips into 23,300 to 23,250 are the entries, the target is the 23,500 ceiling, and the trade is wrong the moment we spend half an hour back below 23,200.
Two, if the open spikes straight into 23,450 to 23,500 in the first hour, that is where you sell the rise, because the sellers defend that block on first test. Chasing a breakout long? Only above 23,500, and only after it holds for a 15 to 30 minute window. Then 23,600 and 23,700 open up, with 60 lakh contracts parked at each.
Three, if the gap fails and we close back under 23,200 for half an hour, the morning was a trap, and 23,100 then 23,000 come fast.
08Lesson and risk: the weekend math of a crowded short
The simpler trade sits in the option prices. The at the money straddle for Tuesday closed at 301 points. The gap will fatten the call side at the open. Do not buy that excitement. If the box sets by noon, Friday afternoon belongs to the premium sellers, because an option sold on Friday collects Saturday and Sunday for free.
And the lesson. The foreign desk is short 2,67,000 index futures contracts. A 250 point gap against a short is marked to market tonight, the loss leaves their account this evening whether they exit or not. Hold through the weekend and Monday can gap again before they can react. Real covering, more than 25,000 contracts, is the tell, and it is fuel above 23,400.
The honest risk is the gap itself. A 250 point gift at the open is also 250 points of air below your entry. Crude at 89 helps us. The rupee at 95.76 does not, the currency is not confirming the party. Respect both.