01Cold open: the writers swapped sides
We are back after two days of holiday. So the PCR on the board that settles today flipped from 0.640 to 1.05 in a single session on Friday. Max pain is at 23,450 and a gap up puts us straight onto it at the open. The US 10 year yield is at 5 this morning, and I named it at 4.97 on Friday. And 80 points of premium came back into the future in one day, and it came back on short covering.
02The receipt: all three happened
Four and a half out of five. That is what I will grade for Friday. I said we would open below the band, that volatility would rise, and that the band would shift lower. All three happened. VIX rose 4 percent to 12.26. The range was 23,231 to 23,448, entirely inside the lower half. I said 23,400 on the map and we settled at 23,398, one point away from it. I said maybe nothing to trade, and the straddle went from 210 to 208. It moved hardly anything.
03Strip the far strikes before you call a flip
The max pain currently is at 23,450. It was 23,500 on Thursday, so it came down 50 points on Friday. The spot settled at 23,398, which is 51 points below the magnet. The PCR is at 1.05; on Thursday it was 0.640. Total put open interest stands at 17.91 crore against 16.99 crore of calls, so calls were cut by 2.58 crore over the day and puts were added almost 5.42 crore. So to be honest about where the cut came from. Most of the cut came from the far strikes, and that was housekeeping: the far out of the money strikes went into unwinding, 25,000 and above, which always happens in expiry week. So look inside 22,900 to 23,900, near the money. Calls added 42 lakh, puts added 2.61 crore, six to one in favour of puts. The near money put call ratio is 1.217. That is the writers swapping sides on the second last day.
04The migration ran five sessions, down 100 a session
So 23,300 is the new both sides strike: the biggest put add on the whole board, 76 lakh at 23,300, and the second biggest call add, 18.47 lakh at the same strike. That strike is 98 points below the spot. And the migration, five sessions now: 23,800, then 23,700, then 23,500, and now 23,400 and 23,300. Down exactly 100 points a session, four sessions running. 23,300 now carries 1.38 crore puts, the biggest near the money block on the board and the biggest support we are going to see. And both sides walked away from 23,500: calls cut by almost 25 lakh, puts cut by almost 20 lakh. Same strike, same day, both writers exited. A strike both writers abandoned on the second last day has stopped being a reference at all. It still shows 93 lakh calls, so it will read as a resistance. It is thinner than it looks.
05The premium came straight back, and why it matters
The September basis went from 6 points to 87 points in a single session, 80 points of premium returning in one day, and the futures open interest fell by 3 lakh 96,630. Rising basis on falling open interest is short covering. Thursday was falling basis on falling open interest, which is long unwinding. Friday is the mirror image of it. The premium did not come back because somebody bought the future. It came back because somebody had to. The Bank Nifty basis went from 125 points to almost 260 in one day. And the far months are being bought outright: October basis 189 points on 3 lakh 20,840 of fresh open interest, November 288 on 61,230. Covering the near month, buying the far ones. This is a positioning move, not a view on today.
06The breadth has been frozen for three sessions
The tape on Friday was very flat. The Nifty settled at 23,398, down 80 points, down 0.34 percent, but it was a reversal day: a low of 23,231, a high of 23,448. It fell 246 points from Thursday's close to the low, then took back almost 167 points into the settlement. Bank Nifty went the other way entirely, up 134 points. And the breadth has been frozen for three sessions. Friday, 952 advances against 1,644 declines, an advance decline of 0.597. Thursday, when the index was up, 0.56. Wednesday, when the index was down, 0.56. Three sessions, the index has swung both ways, and two in three stocks have fallen every single session. Whatever is moving the index, it is not moving the market. The foreign futures short is at 2 lakh 84,000 contracts, another run high, rising every single session of this run without one exception, and their book agrees with itself across all three instruments: short 2.8 lakh futures, short 8.7 lakh calls, long 6.7 lakh puts. Retail de-risked both ends, the call book falling to 1 lakh 50,000 while covering 61,000 puts. That is not a view, that is stepping back. And the pros' call book reversed a fourth time in four sessions, a 1 lakh 18,176 swing. A fast book, not conviction.
07The plan: a pin is settlement mechanics, not a trend
Three major sovereign 10 year yields are sitting on round numbers on the same morning: America at 5, ours at 7.01 from 6.97, Japan at 3. GIFT Nifty is up 82 points and we are the strongest thing on the page, the exact inversion of Friday when Asia was down 2 to 3 percent and we were down half. WTI is at 102.78, Brent back at 107 and both still rated very bullish, with Brent up 76 percent this year, while gold at 4,308 is still bearish and down 0.2 percent for the year. The rupee weakened a fourth consecutive session to 95.55. So the plan. GIFT at 23,525 points to an open of 23,440 to 23,490, a gap of 40 to 90 points, and we open on the magnet. The straddle implied move to the settlement is 260 points and the one SD is 251, so the gap up alone uses 82 of it and there are about 180 points of implied move left. Resistance 23,450, then 23,500, then 23,700, and treat 23,500 with care because both writers cut it. Support 23,400, then 23,300 where 1.38 crore puts sit. The band is 23,150 to 23,650 and we open in the upper half of it. The people who sold 23,300 puts on Friday need the index above 23,300, and max pain says the collective loss is smallest at 23,450, so both point the same way. The counters are the FII shorts at another run high that has not turned once, breadth frozen at 0.56, and a screener that will not buy a single equity index. A pin is settlement mechanics. It is not a trend, so do not read today's close as a direction. Iron flies can be put up at 23,450 with a width of 200 points, 23,650 and 23,250, carried till 3:50. Do not carry anything into the cash session and do not carry anything after 3:15.