01Cold open: the fortress became the lid
On Friday the market did exactly what was mapped. It broke 24,600, it drifted, it stopped at the 24,500 shelf, the low 24,522. So far, so normal. But while price did the boring thing, the options board did something violent.
The strike that was the market's strongest support on Thursday, 24,600, became its strongest resistance by Friday evening. Sixty four lakh fresh calls sold on that one strike in one session. And this morning, all of Asia is flying.
02The tape: break, retest, reject
Friday the Nifty closed 24,570, down 65. It opened soft at 24,539, squeezed to 24,630 in the first hour, then faded all day to 24,522 before a small bounce. The Sensex was harder hit, down 455 at 78,499. The fear index did nothing, sitting at 12.
The detail most people missed, that morning squeeze to 24,630 was the market going back up to touch 24,600 from below, the level it had just broken. It kissed it, it failed, and it fell away. Break, retest, reject. When a broken support gets rejected on the retest, that level has changed teams.
03The rotation: one sector deep
Full market breadth was flat, 1684 advances against 1664 declines. What actually fell was financials and almost nothing else. Bajaj Finance down 5.9, Bajaj Finserv 4.2, ICICI Bank 3.7, Trent 3.5, that is where all 455 Sensex points came from.
On the other side TCS up 3.5, M&M up 2.5, State Bank up 1, the IT index up 1.4 percent on a red day. Thursday IT was the drag and banks the lift, Friday they swapped jerseys. That is rotation, not distribution, and money that rotates is money that stays.
04The Wall flip: same strike, opposite army
On Thursday 24,600 was the biggest put wall for Tuesday's expiry, the magnet and the floor. On Friday, after the failed retest, the put writers ran, nearly 9 lakh puts at 24,600 covered. Into the vacuum came the call writers, 64.5 lakh fresh calls sold at 24,600, taking the strike to almost 1.2 crore contracts, the biggest wall on the whole board. Same strike, opposite army.
The put defense moved one floor down, 15 lakh fresh puts at 24,500, exactly where Friday's fall stopped. The put call ratio collapsed from 0.96 to 0.73. Max pain is still 24,600 and we closed thirty points below it. The magnet is overhead.
05Positioning: long vol, hedged long, and naked
Friday the pros made the biggest single move of the week. Thursday they were short about 40,000 puts, Friday they bought all of them back and went long 1 lakh puts, a 1.4 lakh contract swing in one day, while holding 2.4 lakh calls. Long calls and long puts, a long volatility book walking into expiry.
The foreigners deepened the hedge, long 4.14 lakh puts, short 2.13 lakh calls, short 1.5 lakh index futures against 6.34 lakh long stock futures, a 4 to 1 hedged long, and they bought 480 crore of cash, their first real buy of the week. And the crowd sold another 1.68 lakh puts, now short 5.67 lakh naked into expiry eve at a 12 VIX. Somebody is wrong by Tuesday night, and history says it is rarely the first two.
06The plan: buy the dip, not the fear
The bias is buy on dips. The foreigners are 4 to 1 hedged long and buying cash, the locals absorb everything, the breadth is flat, the damage is one sector deep, Asia is ripping, Nikkei up 2 percent, Taiwan 2.1, GIFT at 24,670 landing the open right at the 24,600 wall. The freshest put wall sits at 24,500, big writers telling you where they will buy. Dips toward 24,550, even 24,500, are for buying. The stop is a close below 24,500, below that the crowd's naked puts start burning and you do not stand in front of that fire.
Upside, the trigger is 24,600 on a closing basis. Cross and hold it and the 64 lakh calls sold there are trapped, their covering becomes the fuel, 24,700 and 24,800 come fast, and the bigger magnet sits at 25,000 where 113 lakh calls are stacked. Target 25,000 first, 25,200 after, into the monthly. The Tuesday straddle costs about 222, movement is underpriced, own it, do not write it. On the book, All Cap up 0.02 since the 3 August rebalance against the benchmark down 0.82, alpha of 0.85 percent in a falling week.