01Cold open: the crowd rebuilt the record
Today is Monday, GIFT Nifty is showing a flat to positive opening, and the crowd, the retail put book, is at a five day high and a record 6.08 lakh naked puts sold. A new record.
And they added almost 1.22 lakh on Friday at the cheapest premium available all month, when volatility is below that 10 mark. Everyone else is buying, and they are selling puts. That is what today's episode is all about.
02The tape: the magnet did its work
Nifty closed Friday at 24,366, just 0.12 percent negative. The high and low was 24,326 to 24,431, exactly between that 24,400 magnet and the 24,300 low. So the grading for Friday's episode is 4 on 5.
Both indices got a late cash hop as expected on a non expiry day, where every cash session is showing some long positive bounce happening on the close.
03The pros: the third loop
The pros flipped up. They have now added around 1.37 lakh calls and are holding around 0.6 lakh puts, so they are holding both calls and puts when volatility is low. This is the third loop they are running, buy the cheap volatility, sell it once the spike happens, and buy it back again when it is cheap.
Now you understand why they have gone long volatility today, because the volatility arc has been falling, from 10 to 12.2 to 9.9 to 9.4 to almost 8. That is the lowest we have seen. The Tuesday straddle is trading at 168, last close was around 140, so another 20 to 30 points of decay is left. Expiry movement has never been cheaper this cycle, one day before expiry.
04The institutions: both sides bought
The FIIs have hit the max puts they have bought in, holding 4.97 lakh puts. Along with that they are 1.77 lakh futures short, and short 2.77 lakh calls. In the cash market they bought 508 crore, two of the three days they bought, and 5,589 crore into index options. The DIIs also bought 356 crore, so both bought in.
The FIIs are maintaining their hedge, long the stocks, short the index futures at a record high of 1.77 lakh, short calls and long puts. Keep an eye on that, because that is where the selling is coming from. And the retail crowd is trapped again with a record 6.08 lakh naked puts short, having sold almost 1.22 lakh on Friday. Five days after that record, and if the market breaks 24,300, they are cooked.
05The chain: everything converging on 24,400
The option chain is stable. 24,400 is still the magnet, so it should be at the centre of any trade. 24,300 has 1.02 crore, almost 24 lakh puts got added on Friday. 24,000 is the base with the maximum support, 1.14 crore puts written, though I do not see the market going below 24,200.
The 24,400 calls are the first resistance, just below the one crore mark at 81 lakh. 25,000 calls saw some covering but still hold around 1.13 crore. So resistance 24,400, support 24,300, PCR at 0.884, and the basis is around 80 points from weekly to monthly futures. Support is stacking up, resistance is just at the money, everything is converging on 24,400. And today is rebalance day on the RupeeCase All Cap, 50 stocks, two percent each, a CAGR of roughly 47 percent over five years.
06The plan: buy dips, watch the straddle spike
Buy on dips continues, unchanged for the whole month. FII cash buying has intensified, two of three days, along with the insurance they are buying, and the DIIs are absorbing. 24,300 is the support, 24,000 the base case with 1.14 crore puts. So buy dips toward the 24,300 zone, stop below 24,250. If 24,250 breaks then 24,100 and 24,000 can also get hit. Upside, reclaim 24,400 on a closing basis and the magnet can shift to 24,500 first.
Rule number one today, volatility is extremely cheap, so if you are selling an intraday straddle keep a watch on any straddle spike. If the spike starts, get out immediately, do not wait for the premium to decay till 3:15. Globally, GIFT is negative 30 points opening around 24,400, the Nikkei at a record 68,739, Hong Kong up 1.35, gold at a record 4,400, Brent 88.84, the rupee 95.43. The sleeper to watch is Japanese yields, the 10 year rising to 2.93.