01Cold open: the close was made in the auction
Yesterday the close was made in the auction. Both indices printed their low as their close, and neither did it on the tape, it happened in the cash closing session. The Sensex traded 77,600 to 77,700 throughout the afternoon and settled at 77,472. The Nifty was near 24,280 at 3:15 and printed 24,207 at the close. The futures never followed, and the synthetic future never followed either, which is why the September basis reads a weak looking 245. Today the same mechanism settles the Sensex expiry. This is auction round five. Meanwhile the writers flipped completely: the Sensex board went from writing puts 8 to 1, to writing calls 5 to 1.
02Wednesday's Sensex: the low was the close
The Sensex closed 183 points lower, 0.24 percent, at 77,472. The open was 77,892, the high was 77,986, and the low of 77,472 was made in the closing auction session. The afternoon tape sat between 77,600 and 77,700 and the settlement happened 180 points lower. That was the cash session doing the work, not the tape. Under the surface, cement, metals, chemicals, private banks and PSUs were up, while IT fell 1.47 percent along with infrastructure, CPSE, FMCG, consumer durables and auto. And in the reversal of Tuesday, Smallcap was up 100 points or 0.81 percent, Smallcap 50 up 0.62 percent and Microcap 250 up 0.6 percent, all green while the Nifty fell. So this was a large cap decline and the broader market did not participate.
03The board flipped: 8 to 1 puts becomes 5 to 1 calls
A complete flip happened yesterday. On Tuesday 1.21 crore puts were written against 16 lakh calls, eight to one. Yesterday exactly the opposite: 2.69 crore calls written against 54 lakh puts, roughly five to one the other way. The 78,000 call now stands at 40 lakh, the resistance and the biggest position on the board, with 77,900 around 21 lakh, and 77,800 also written. Calls were covered below the spot at 77,300, 77,200, 77,100 and 77,000. Puts were written at 77,000 with 20 lakh, the biggest put position, 77,400 with 13 lakh and 76,800 with 8.6 lakh, while the 77,500 put was trimmed by 3.4 lakh to almost 14 lakh outstanding. That trim, right under spot, is the trap.
04The expiry map: the magnet and the pivot are the same level
The PCR came down below one and is trading at 0.858. Max pain sits at 77,600, which is 127 points above the spot, and the gamma flip level came down to 77,600 as well. The magnet and the pivot are the same level today. Strike ratios read 100 puts per call at 76,800, 9.5 at 77,000, 1.2 at 77,500 and 0.2 at 78,000, so the expiry is expected between 77,500 and 78,000. The 27th August expiry IV is up 6 percent and trading around 11 percent. Expiry day one SD is around 408 points, from 77,100 to 77,900. The at the money 77,500 straddle is trading at 379, the live series printed 410, down 15 percent on the day. The straddle implied move is around 475 points, giving 77,000 to 77,950. So the battlefield is 77,100 to 77,900 with 77,600 as the pivot. The basis is trading wrong and is showing almost 781 points on the Sensex.
05The Nifty: PCR collapses and the support migrates lower
Calls were written 4.3 times faster than puts, with call OI at 5.9 lakh crore against put OI of 1.37 lakh crore. The 24,500 call holds a one crore position, the biggest one, then 24,400 with almost 87 lakh. 24,350, 24,450, 24,600 and 24,700 all saw calls written. The first line of support is 24,200, where almost 11 lakh got shed, with 24,250 shedding 5 lakh and 24,150 shedding around 1 lakh. That migration is the message: the writers are moving their support down to 24,000 directly. The PCR collapsed from 1.1 to 0.73 in one session. Max pain still holds at 24,300, still above the spot, and the gamma flip level is still above at 24,350 with the spot below it, so amplified moves stay switched on. The daily one SD is 24,100 to 24,314 and Tuesday's expiry is predicted between 24,000 and 24,450.
06Who did what: the crowd long calls and short puts
The pros sold calls again, booking down to 40,000 calls, the third flip session in four. They bought back 51,000 puts, booking to 75,000, and are now holding the protection. The desk is steady in the range and is still long calls, long puts and long futures. The FIIs wrote 37,000 more calls, so the short book stands at 2.36 lakh calls, futures short is steady at 1.86 lakh, and in cash they bought again for the third day, 503 crore. The clients bought more calls to take the book to 1.91 lakh, added 60,000 naked puts, and that book is back above 6.5 lakh and trading at 6.63 lakh. Long calls and short puts, maximum bullish exposure on the day the market broke. The pros and the foreigners took the other side of both legs. On flows, DII cash was 6,425 crore against 230 crore on Tuesday, and FII cash was 503 crore, the third day of buying.
07The plan: the 77,600 iron fly
Keep a watch on the first 45 minutes. The pivot is 77,600 on the Sensex, where max pain and the gamma flip level are the same number. Above 77,600 gamma is positive, the day compresses and a drift towards 77,800 can happen, and that is the base case, not the best case. 78,000 is the resistance with 40 lakh calls written there, and nothing should cross it today. Below 77,600 the board amplifies the moves because we enter negative gamma, with the 77,500 puts trimmed, and the market could fall to 77,200 to 77,300. The expiry range is broad at 77,065 to 77,881. Do not judge the day after 3:15, because yesterday the print moved the market 180 points in the last few minutes. Spreads only, no naked buying or selling. Ideally the 77,600 iron fly, with a 300 point range covering 77,300 to 77,900. On the Nifty, 24,350 is the level, support at 24,200 is thinning and resistance is built at 24,300, 24,400 and 24,500. Do not trade the cash session.