01Cold open: the resistance became the fuel
The resistance is now acting as the rocket fuel for the market. Monday the writers built the biggest position of the cycle, 2.16 crore calls written at 24,300. Tuesday, on the expiry, the market walked straight through it and closed at a high of 24,334, which is 134 points above max pain. On the day the weekly, monthly and quarterly books settled together. The trapdoor held first, with a low of 24,115, fifteen points above the line we drew. And the crowd, holding an 8.44 lakh naked put book, saw it expire worthless. For once, they won. Overnight oil collapsed to 86.44 from 94 on Friday. Every rider we flagged has resolved the friendly way.
02Tuesday's expiry: the close was the high
The Nifty closed at 24,334, up 115 points or 0.48 percent, and the close was the high of the day. The rally started in the second half after 2:30 and expanded in the cash session. The open was around 24,175, the low was 24,115, and then a one way squeeze from 2:30. Advances were 34 against declines of 16, so two to one. The Sensex added another 286 points to close at 77,656, also at a high, after a 530 point range. VIX fell 3.5 percent to 11.13, so two days of fear building unwound in one hour. Midcap, IT and telecom were all positive, healthcare and consumer durables more than a percent, pharma 0.85 percent and PSU bank 0.75 percent. But Smallcap 250 was down and microcap was down. Large caps got squeezed and the broader market did not follow.
03The grade: max pain is not a law
I will take a three on five for yesterday. 24,300 was the level and it crossed it, so that is the loss I will take. The lesson is that the biggest resistance was also broken. 4.3 crore calls were written on Monday, 2.16 crore of them at 24,300 alone, and it got ripped off in ten minutes. When price closes above a position that size, the writers become the buyers. Max pain was 24,200 to 24,250 and the settlement printed 134 points above it. Max pain is not a law. On expiry day a resistance that large is not a guarantee, and it can be changed in the live market as well. This analysis is on an end of day basis, so remember that. And the mirror: the crowd's 8.44 lakh puts got unwound, some in the morning trade, and the rally made the rest expire worthless.
04The fresh board: puts written 1.75 times faster
The BhavCopy is telling us something new. Puts are being written 1.75 times faster than calls, with put OI at 3.67 crore against call OI of 2.1 crore on the new expiry book. The 24,200 put now stands at 74 lakh, the biggest single add anywhere, and that is the support we take ahead. 24,100 stands at 40 lakh, 24,000 at 41 lakh, the 24,250 put at 34 lakh, and the 24,300 put at 44 lakh against 39 lakh on the call, which is the tipping point. Calls are stacked above 24,500 at around 55 lakh, and the biggest call position now sits at 24,600. The PCR has climbed nicely to 1.159, max pain has climbed above 24,300, and the gamma flip level is positive above 24,400. Support is 24,300 then 24,200, resistance is 24,400 then 24,500.
05The Sensex board into Thursday
Put OI added almost 1.21 crore against 16 lakh calls, roughly eight to one. Calls were covered at 77,700, 77,600, 77,500 and 77,400 across the board, so the real call buildup is only present at 78,000 and that is not a great resistance either. Strike ratios read 6.5 puts per call at 77,000, two per call at 77,500 and 0.3 at 78,000. So support is present at 77,500 and resistance at 78,000. Gamma turns positive above 77,800, so keep a watch on that, and remember that if 77,800 is broken we could easily see 78,000 getting pinned into. The one standard deviation map for next week's expiry stands at 24,080 to 24,600 with almost 260 points of swing possible, and the daily one SD for today is 24,240 to 24,460.
06Who did what: the pros bought back what they dumped
The pros bought back roughly 1.35 lakh calls. The desk that dumped 1.8 lakh calls on Monday's gap repurchased them into the squeeze. They dumped 1.74 lakh puts, so the protection got sold off into the strength, and futures are still long, trimmed slightly. The FIIs covered almost 35,000 short futures, and a short squeeze should come in if the rally continues. The put book got trimmed by 32,000 contracts, and in cash it was a straight buy on the second day of almost 1,594 crore. The clients sold almost 1.3 lakh calls into the rally, so the crowd sold what it bought at the top, on the right side for once. The record 8.44 lakh naked puts fell to almost 2 lakh as they expired worthless, and their most dangerous position of the month closed out for a profit they never had.
07The plan: a gap up above every level that mattered
The gap up opens near 24,400, above every level that mattered last week. 24,350 to 24,400 is the pivot and gamma turns positive above it, so above 24,400 the dips get bought and swings shrink, while below it the amplified moves come back. Support right now is 24,320, so that is where the first buy zone opens. Resistance stands between 24,400 and 24,500, then 24,590 which is the one SD level. Base case, the gap up is held, 24,350 becomes the support and the range becomes 24,350 to 24,550. Fade case, the gap up is sold and we test back to 24,300, and below 24,300 the bullishness gets paused. For the Sensex expiry tomorrow, 78,000 is the resistance, 77,500 is the support and the expiry flip can happen above 77,800. The macro riders are tailwinds for now and oil at 86 is giving that firmness.