I will not say that sellers are here because we already did that before even sellers came i.e., 24th September 2024. (link shared below). We identified a scenario which makes a great RR for shorters.
India’s most volatile benchmark Bank (which is also about go extinct) future crashed 2,200 points in last 5 trading sessions. So what really went wrong, why did markets fall, despite the Indian bourses showing a great growth narrative ? Let us first understand that a rate cut is a tool used by central banks to boost growth by bringing down the cost of credit. This spurs growth and creates upside pressure in inflation numbers. Ideally, no rate cut or rate cut according to experts, markets should witness a buying rally. Why was it different this time?
The Premium Miscalculation
In order to understand what went wrong, we need to focus on the objectives of Total Premium. At the onset we must know that the Options helps maintain stability of a portfolio and propel it towards a growth trajectory in a down market as well. In a rising market, option premiums usually lose their value, since puts melt faster on the way up. The purpose is to balance the premiums in such a way that far range traders and algo’s who have identified a decent bracket, get the most of it. But when opposite happens – when premiums rise with rising market, its unusual. In a way, it indicates, more buying happening across the strikes in anticipation of a larger movement over a period of time. This is where the miscalculation happened. Refer to our LinkedIn post where we first identified this and posted. This is 24th September 2024 – When market was making a new high . https://www.linkedin.com/posts/apurva-sharma-38b6b9171_premiumsneverlie-activity-7243895235066425346-jiSm?utm_source=share&utm_medium=member_desktop
Why Did Bank Nifty Fall?
Today’s plunge of 1,120 points in Bank Nifty can be directly linked to the this mishap in calculations by smart money. A layman’s eye cannot see it. Amplify and Traders/ Investors who have been with us, can easily see. They saw from 30th Sept itself.
Surprisingly, the Central Bank last month did not cut the rates in spite of US fed doing 50 bps cut. The rate cut didn’t happen, it said was not aimed at spurring future growth but to maintain inflation. This caused the market makers to discount the move as a preventive measure and not a permanent cure and triggered selling.
Keeping all those factors in mind, we took few short trades Intraday and booked few shorts overnight in call sell spreads. We had created multiple spreads from 52,100 CEs to 51,800 CEs and today we sold 51,600 CE as a prophylaxis measure.
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