Like the bullish and bearish sentiment that exists all the time, there are two sentiments that are running in the market on Coronavirus front too. There are the bulls who, seeing that the number of positive cases remaining around 15 levels for last 3 days says that we are at a stage where we are almost coming out of moving into Stage III of mass transmission. But there are also bears who say that stage III is inevitable and at some stage, something will trigger it.
Talking globally, Dow Jones had a rally last night of 1050 points and then in the morning, the Dow futures are down by 700 points giving up most of the gains. That’s the kind of volatility we are in right now. Asia is in a mixed zone, moving between red and green but Brent is falling continuously and now is below 29 and trading at 28.9 dollars.
Domestically, the most crucial thing that traders need to understand is the implied volatility of the different premiums in the options market and overall Vix value. Yesterday, it made a new all-time high and went all the way to 63. The result is Futures are trading in huge discounts and options premiums are unreasonably higher.
For example, the At the Money 8950 call has a premium of 274 rupees for tomorrow’s expiry when the underlying is at 8967. That means the intrinsic value is 13 rupees while the time value is 261. How can an option have a 261 rupee time value for 2 days expiry time? unless these things come to some kind of normalcy it is impossible for anyone to trade because there is no point in buying anything at these levels when the time value will come to zero at the time of expiry.
On the derivatives front, there was some activity observed in the Futures market as options have become untradable now. There were some long positions built in the morning as Nifty was going up and the overall long positions jumped from 28% at the beginning of the day to 36% by the time we closed the trade.
In the options market also the shorting started as people realized that time value disappears at expiry and many of the out of the money puts and call were shorted and that kept the PCR even at 1.04 vs 1.01 seen at the beginning. 8100 put followed by 9000 put has the highest open interest on put side while on the call side 10000 call followed by 9500 call have the highest OI. This indicated that there is a 9000-10000 band which will be the first choice for expiry and 8100-9500 mark as the second choice for tomorrow’s expiry.
What is the Nifty call for the day?
I feel that I am writing this post only for information as every day I keep saying the same thing. THERE IS NO TRADE FOR TODAY!
Yes, today also it is the same story. A lot of things are happening around and with an uncertainty of Corona looming large there is a chance that 8555 which was the last Friday’s low could be taken out and 8100 can be the support. On the bullish side, 10160 is Friday’s high that should hold. Till the time Nifty is in this range, there is no chance of any trade. Let Nifty come out of this range and let the volatility come to normal levels, then only we can look for any trade. Till then, learn because everyday market teaches many new things.