India’s benchmark Nifty future has had a extreme volatile times in last 2 weeks. The index surprised everyone by registering all time high of 24,351 on 25th November 2024 by rallying 1,000 points (approx.) in 2 trading sessions, despite being in a downtrend. In today’s article we shall discuss how the institutional buyers successfully pulled off a surprise upside run of 1,088 points between 23,263 and 24,352.
The Inception Point
In order to understand the starting point of this quick rally, let us take a close look at what the institutional traders did in the last couple of weeks. Under normal circumstances, market makers would generally buy Call options and short Put options during a bull run. Surprising as it may sound, from 21st November 2024, they were long both in the OTM Call and Put strikes.
From 11th Nov, Nifty slipped 1,073 points after registering a high of 24,337 on 11th itself. What you need to notice here is, whether the fall is aggressive or not. Towards the end of the fall, on 21st Nov it was not at all a sharp fall, as the market makers were primarily booking profits in their overnight short positions, by selling the Call first and holding on to the Put. The most important thing to note was, although market had fallen and the index registered a low of 23,263, the institutional traders did not buy fresh Put options, they simply squared off the Put after all the Calls were squared-off. So how can retail traders take advantage of such a situation?
The Smart Trade Execution
At this point what you can do is very simple, you must never jump to a conclusion. The intelligent thing to do is waiting till you know what the market makers would do, when market opens on Friday morning. When the market opened on Friday, the institutional traders started building long positions again. Now the decision making is easy. This is exactly what we did; we went long on 22nd Nov in the 23,800 Call @ INR 107 and hedged with 24,000 Call @ INR 48 by creating a spread at 60, all in 28th Nov contract. Thereafter Nifty future witnessed a furious upside rally of 1,088 points. The Calls became 4x and our spread became 3x and later was squared off at INR 187.
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