S2Ep120 | Friday's Board Was Built For A Rally And It Took One Session To Take The Whole Thing Apart | 659 Lakh Calls Written, 189 Lakh Puts Covered | I Am Still Buying The Dip Into 23,600 With An Expiry Target Of 23,900 | 8th Sept Tuesday

Friday's option board was built for a rally: calls bought back, puts written, volatility crushed. It took the market one session to take the whole thing apart. Yesterday 659.17 lakh calls were written and 189.23 lakh puts were bought back, and the put call ratio fell from 0.844 to 0.556.THE RECEIPT. On record yesterday: the question was not whether we take 24,000, it was whether we reclaim 23,900, and if we failed there the people who wrote puts at that strike on Friday were the ones in trouble. The high was 23,890, ten points short. The 23,900 put went from 59.85 to 128.80, more than doubling, and 75.84 lakh of open interest came off as the writers bought themselves out.THE TAPE. Nifty 23,779.15, down half a percent. It opened 23,883.15, made its high in the first few minutes and fell all day to 23,737.90. Thirteen up and thirty seven down inside the index, 1,096 against 1,760 on the full market. The Sensex fell the same half percent and its low was not its close, ending a four session streak.WHERE THE MONEY WENT. Nifty IT fell 2.28 percent and it was not one name: Infosys minus 3.76 on 839 crore, LTTS minus 2.26, Mphasis minus 2.18, Tech Mahindra minus 2.06, with Coforge, Persistent, Oracle Financial, TCS and HCL Tech all following. Ten of ten. Against that, thirty five pharmaceutical names finished up more than 2 percent, the most of any industry, led by Anuh Pharma at plus 12.21 and Hikal at plus 9.54. The money did not leave, it walked from IT into pharma in one session.THE BOARD. 23,800 took 151.18 lakh calls in a single session, 23,900 took 119.70 and 23,850 took 107.23, so they sold calls at every strike from 23,750 up to 24,000. On the put side 23,900 lost 75.84 lakh, 23,950 lost 40.91 and 24,000 lost 26.49, buying back every put written on Friday. Max pain is 23,800, only 21 points above the close. Implied volatility 11.60 percent and one standard deviation 144 points. And the September basis collapsed to 88.55 from 150.40, a 62 point give-back, while futures open interest rose 7.02 lakh, so that was fresh selling at a lower premium rather than unwinding. The cash never validated that premium and the futures came to the cash.WHAT SHOULD WORRY YOU. The retail naked put book went to 8,89,308 from 7,16,258, so 1,73,050 more puts sold in one session, into a falling market, on the eve of expiry, and that is a new high for the run. Friday's reduction lasted exactly one day. The foreign index futures short went to 2,50,093, another run high, in a book that has risen every session and never once turned.OVERNIGHT. The Dow future is down 0.63 percent and kept falling overnight. Asia has cooled: the KOSPI is still up 1.75 percent but the Nikkei is back to plus 0.23 from plus 2.08, so the north Asia surge we were not part of has burned itself out in one session. Oil paused at 97.00. And the yen is up another 1.98 percent at 153.16, the biggest currency move of this run.THE STRUCTURE. An iron fly, body 23,900, wings 23,700 and 24,100. Credit 126.45, maximum loss 73.55, risk to reward 1 to 1.72, breakevens 23,773.55 and 24,026.45. Spot is already inside that payoff zone, maximum profit sits at exactly 23,900, and the whole target zone is in profit. It gets better if the dip comes. Held into settlement, not scalped. A defined risk fly into the close is fine; a naked short option is not.Prior episode graded 4 on 5. Full scorecard on rupeecase.com.Data sourced from NSE, BSE, SEBI, NSDL and CDSL. Option and cash figures are the 7 September close, global figures 8 September morning. New episode every trading day at 8:30 AM IST. The Tanmay Edge streams first on rupeecase.com. Educational content, not investment advice. SEBI RA application under process.