01Cold open: the morning korea broke
Today the KOSPI is down 5.36 percent this morning. The five days the market went up, crashed in one session. The Nikkei is down 2.37 percent, minus 600 points off its record. The Nasdaq yesterday closed 1.33 percent and the S&P was down 0.69 percent.
Brent is trading at 92.04, still climbing through the fired trigger, and the rupee is trading at 95.68, the weakest close ever. And our own tape walks in six days down continuously. This is the global morning.
02The tape: six straight lower closes
Tuesday's expiry settled at 24,155, 132 points lower, 0.55 percent, at the low of the day. A gap down open at 24,223, a high of 24,269, no recovery throughout the session, and the session printed the low. The fall has started from 24,472 and now we are at 24,155, minus 317 points in six sessions. The staircase is now a trend.
The Sensex closed at 77,235, minus almost 500 points, also at its low. Breadth was 10 up and 40 down. The settlement happened 195 points below the max pain. A sliding market beats a static magnet every time. The only green pocket was defensives, 1.29 percent positive, IT down 1.93, realty down 1.42.
03The two books that diverged: the crowd
The clients hit a fourth consecutive record in naked put selling. They started with 5.74 lakh, went to 6.08, then 6.61, and yesterday closed at 6.97 lakh of naked put writing. They sold almost 37,000 more puts while the third record was burning at settlement, plus 1.66 lakh fresh calls bought.
So clients are maximum bullish both directions. Six red days, they are facing the pain on the puts and shifting it lower and lower, and calls they are buying more and more.
04The pros: first directional lean of the month
The proprietary desks dumped the call leg. They had long puts and long calls that they had carried, now they are carrying net short calls of 0.71 lakh. Their first directional bearish lean of the month.
All the cycle they traded volatility both sides. Yesterday they picked one side, the downward, and today we see whether they book it. When the crowd shows no fear and the pros show their first sign of picking a direction, the second group is the one we lean into.
05The FIIs: hedge growing, cash buying
Puts, they are now long 6.11 lakh, first time over 6 lakh, and yesterday they bought almost 1.09 lakh in one day. Along with that, index futures short of almost 1.94 lakh, a new cycle high.
But in the cash market they are buying, and in stock futures they are buying. In cash they bought 1,652 crore, and the DIIs bought 2,579 crore. In index options they bought 24,163, washed out with the expiry. Four weeks, the same picture. Own the stock, hedge it in the insurance, that is what the trend is showing.
06The board: max pain above spot
Max pain still stands at 24,300 to 350, 145 to 150 points above the spot. The magnet argues bounce for once, but we are not seeing that bounce happening yet. The call writers pressed again, 1.1 crore at 24,200 and 24,300 in one day. Almost 54.5 lakh added at 24,200, almost 69 lakh at 24,300, 80 lakh at 24,400, and 24,500 at 1.21 crore. So resistance across the board from 24,200 to 24,500.
Support, the base case is 24,000 where 1.14 crore puts have been written, and between that it is thin air. PCR at 0.82 showing a weak expiry, the weekly straddle 217 to 270, front IV just below 10, and the monthly basis 75 positive points, so no panic in the futures. And the Sensex expiry is tomorrow with IV building to 11 percent versus the Nifty's below 10. The auction premium returns.
07The plan: smallest size, let the level prove itself
After two days of stop losses, we do not change the side immediately. Smallest size we keep, and the level proves itself. The market has been cracking down, but 24,000 is the level I am looking for, so 24,000 to 24,350 is the zone. The bounce case is around 150 to 160 points, so I keep my analysis centred around 24,300 to 24,250.
The break case is Korea and oil, and oil is already at 92. The pros are short calls, so if we see unwinding on the client side we could see the bounce. Until then the market is still bearish and volatility is rising. And tomorrow is the Sensex expiry, so sell the straddle today with stop losses, and if the straddle keeps rising, get out of it.