India’s most volatile Index - Bank Nifty breached the narrow consolidation corridor between 43,000 and 44,400 and closed above 45,000 for the first time. In this week’s trading, although the index had already rallied, the call sellers had to wrap up their positions and go all out in put selling as institutional traders bought futures at higher level.
The important question is, how did put options generate such impressive returns and how did we anticipate this move before others?
The Presence of Institutional Traders
Smart money bought Bank Nifty futures on 30th June 2023 right from the very 1st tick and these buyers were serious ones as they managed to uplift the index for 1200 points. 3D Delta software already indicated a possible VPOC to be formed above 45,000 on Monday (3rd July) as Price was chasing the Value.
The way the software works is that it identifies where the auction is taking place and how the big time frame buyers and seller are reacting to the constant flow of data. When the settlement happens and value area is formed, buyers take the price up as they know the seller’s value is way above their buy price. Always remember this, Prices go up to find seller and moves down to find buyers. Just how a simple auction works, market functions in the exact same way.
What is even more interesting is, today the 3D Delta system indicated that the institutions were short in ITM Put options and they were using their open ratio positions to protect the market from any drastic fall. Time and again we have explained in the past, that when markets makers enter, they trigger an exponential rise in option premiums due to the sheer volume of their transactions no matter how slow the market rises or falls. This explains why put options generated impressive returns Bank Nifty rising only 200 points on Friday.
Since we knew that the institutions were short in the ITM Put Options, we sold the 45,000 strike Put to check whether it can generate returns despite the presence of the ratio. The Put option was sold @442 .We took the trade overnight when Bank Nifty closed at 44,747 on Friday with complete hedge. The system also indicated that that the upside target was above 45,200, however, the RR was conducive. The narrow upside target explained the presence of the ratio. The Put option registered a low of @ 130 on Monday (3rd July) when Bank Nifty scaled up to 45,353 approx. The position was later squared off @ 200. The same put was sold again at 196 and squared of today (6th July) at 5.