India’s benchmark Nifty staged an impressive bounce-back of 114 points in today’s session despite open interest data showing heavy sell positions by FII and Pro yesterday. The question is why did Nifty zoom up more than 100 points, despite a 40 points gap down opening?
Why Did Nifty Bounce Back Today?
The answer is loud and clear; yesterday the institutional sellers entered the market in the morning but were forced to book profits 25 points above their target due to theta decay in Put options. Today’s gap down move was merely a formality to achieve the designated downside target of 11852. This is primarily why the institutional seller registered and maintained an exact low 11853 today, almost for an hour after the market opened at 9:15. Today’s sharp up move despite heavy selling by FII and PRO yesterday is a bold reminder once again that traders must use the Black Scholes model for higher levels of accuracy and consistency in profits.
Is today’s up move an indication of a buy trend?
The 3D Delta system is indicating that Nifty is evenly placed between the buyers and sellers and a directional move can only be triggered if institutional traders enter the market. So was it the right to book profits in the 11800 Put options yesterday? Look closely, we had bought the Put option @ Rs.72 when the institutional seller entered the market yesterday. The Put had made a high of Rs.90 yesterday when Nifty made a low of 11877. Today, the index registered a fresh low of 11836, what is surprising is, the 11800 Put options made a high of Rs.96 only and closed near the day’s low @ Rs 61. In case you are wondering why this has happened today? Look at India Vix, it has dropped down to 13.66 which has triggered a tapering in the implied volatility of Put options. Truth be told, each one of us participate in the market to make some extra money. Truth be told, each one of us participates in the market to make some extra money. We all can achieve this goal if we follow the principles of derivatives trading and avoid deceptive indicators like OI data. The sooner we realize this, the better it is for our trading career.