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What Is Happening In The Market?

India’s most volatile benchmark Bank Nifty futures tanked 960 odd points in last 4 trading session. The index has shed away up 1,600 points from its ATH of 53,301 and registered a low of 51,860 today. In today’s session itself, the institutional traders initiated profit booking around 51,800 levels. Market participants were divided into two schools of thought today. Some saw the 635 points fall as selling, while others labeled it as profit taking. Let’s find out what the institutional traders had to say.

Selling Or Profit Booking?

Bank Nifty Futures opened at 52,400 in the morning and went below yesterday’s low of 52,205. We need to keep in mind here that institutional traders did not initiate outright shorts today. The 960 points fall in last 4 days had a mathematical element of surprise as the move was pre planned by market makers. Retail clients also can replicate these moves if they can determine the point where the theta overshoots its neutral threshold. We all know that Bank Nifty expiry was yesterday – 10th July 2024. What others fall to recognize and see is the responsive sellers were still there in the market. Responsive traders do not look for trending move. A move of more than 2 ADMs (Average Daily Movement) is enough for them. They look for Theta neutral zone .These placing of strikes by smart money will trigger a stunning acceleration in theta decay. Therefore the idea is to take advantage of this thumb rule with the help of specific option strike analysis.

Take a closer look at the auction data. The red circles drawn. These are responsive sellers. After a point when their ammo diminishes, they wrap up their position, which is what happened today.

The Call and Put Analysis

To find out more about the institutional positions, we sold the 52,600 Call option @296 on 10th July 2024 right at the open as responsive sellers gathered. The idea was to capture whether the magnitude of time decay in the Call option was higher than the magnitude of expansion in the Put option. Let us keep in mind that we stacked the odds in favor of the call option. Bank Nifty fell 746 points from 10th July to today’s low. The Call option lost 73% due to a fall of 746 points. We can conclude the from the above position, that it will be fair to classify today’s fall as a profit booking move and not selling per se.

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