Why Is Bank Nifty Trapped In A Range, What Is It Indicating?

India’s most volatile benchmark Bank Nifty Futures was stuck in the range of 750 points from 50,250 to 49,500 on 10th & 11th June. The index made a high of 50,236 and low of 49,530. The important question is why was Bank Nifty trading sideways on 10th and 11th June?

The Ratio Effect

Bank Nifty had slipped into a narrow band as the institutional traders have created ratios in the index effective the 10th of June. At the close of the market on 12th June 2024 (Expiry day), the ratio had generated 96% returns already. Since post elections recovery and GDP data, CPI data, smart money were making these events a NON EVENT in the utmost need to squeeze the premiums on both sides., Bank Nifty traded in a range of 750 points between 50,250 and 49,500 approx.

Can The Market Form A Clear Trend?

For a clear direction to be formed, the institutional traders must unwind the existing ratios in Bank Nifty. With mixed data points at hand, the market is eagerly waiting for clarity from the Government, RBI and Federal Reserve. However Bank Nifty might witness large swings if the ratios are wrapped up or the Fed does another U-turn towards the end of the June contract.

Live Example.

Since we witnessed a catastrophic fall in the volatility post elections. We saw a huge correlation between Theta Vega positive strikes. Keeping the same thing in mind, 49,300 PE was sold @293 on 10th June 2024 to test our calculation of Theta over- powering Vega and was later recovered at @118 on 11th June.