Why Nifty Could Not Sustain 23000 Levels

India’s benchmark Nifty today opened gap down by 150 points and then saw a one sided downward movement towards 22800 levels. So what really went wrong, why did markets fall? Why is it different this time? The 450 points fall 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.

Why Did Nifty Fall?

Step one is understanding what the market maker is trying to do, step two is about calculating the fair value of an option strike based on the contract they are trading. So at 9.20 AM today Nifty spot was trading at 23040 levels approx and we were already in negative gamma zone and the Highest Gamma Exposure (GEX) was at 23000 & 23300 levels which says that if 23000 breaks then call writers will be more active compared to puts writers. But will the fall be a one sided slide or a choppy movement where theta decay will be more that only 22900CE gave a clear picture when it went below 360 levels. Because GEX was 23300 on the upperside so 360 added to 22900 strike gives 23260 which says that till when 22900CE strike is below 360 till then call writers are active and 22900 minus 360 is 22550, so for downside 22550PE strike should not trade above 138 as it’s the X variable according to premium calculation and 22900PE made a high of 122 only and 22900CE from 360 came down to almost 160 levels. This clearly shows a picture that levels of option premium with market has a clear correlation regards to trading derivatives.

Trading Without Predictions

Trading can be very rewarding if we avoid predictions and follow option premium and its levels. Most traders would pop question like, what if I miss out. The answer is, stop spinning those unnecessary ideas in your mind. Simply avoid building positions when the market does not participate and when it does like today then trade it with confidence. As one of our traders did today his PL is shared below in the screenshot and he was neutral in his trade didn’t sell calls more as it was a choppy movement.