India’s benchmark Nifty registered a high of 12070 last week and underwent massive swings due to rapid shifts in the implied volatility of the options market. Post-election results, India Vix has dropped down to 16 from a high of 29. This inverse drift in the Lambda curve has caused Nifty future to close at 11915 today, marginally below spot Nifty at 11924 approx. This phenomenon is known as backwardation and is significant as it has placed Nifty marginally in favor of the buyers. The important question is, can the Bulls stage another upsurge till 12000?
What Are Institutions Doing?
In an interesting turn of events, the institutional traders created ratios with call options around 1:15 pm on the 23rd of May. The institutions used the inverse drift in the Lambda curve to their advantage and created the Call ratio as India Vix dropped almost 40% in a short while. The 3d Delta software is indicating that the Institutions are likely to hold on to their Call ratio till the gamma – vega covariance in the Put option turns positive.
Can The Bulls Hit Back?
Black Scholes equations are indicating that today’s closing at 11915 will play a significant role in deciding the market direction tomorrow. Nifty bulls can trigger an upside rally only if it manages to push the index above tomorrow’s range high. Tomorrow’s range low on the other hand will hold the trump card. If the range low is broken, long Call ratios will be wrapped up due to profit booking by institutions.