The Lighter The Better

Multiple theories try to explain the moves in the market. These theories come from various branches of academics, like economics, statistics, physics and at times astronomy as well. All these are so deeply interconnected that it becomes difficult to understand which force is acting on the market. However, one thing is very clear that for markets to move up it is crucial that it is light in positions. This applies not only to single stocks but also to Nifty as a whole.

That is the reason why “crowded trades” do not tend to fructify. If large part of the market is bending towards a particular side, it is difficult for that event to occur. For markets to move higher it is important, the positions are on the lighter side. The term positions, out here stand for futures & options positions. As the directional position keep increasing in the derivative segment, move in that direction becomes difficult.

A reduction in the position is lead by either an event or expiration of the position at the end of a series. Such an event occurred at the end of last (February) series. Just to highlight that I will share with you some data points at the end of February series:

• Nifty futures rollover at 62%, lower compare to 67% average in last three months (70% in previous expiry)
• Nifty calendar spread narrowed on expiry day to 1-5 points discount from 22-23 points premium in expiry week
• Post expiry, Nifty OI opened for Mar Series at 19.19 mn units compared to 25.92 mn units in Feb series
• Index futures Mar OI opened at INR 246 bn, compared to INR 353 bn in Feb
• Market-wide rollover stood at 83%, inline compared to 87% in previous 3 expiries
• Stock futures Mar OI opened at INR 1134 bn, compared to INR 1302 bn in Feb.
• Huge OI expired in VEDL, SBIN, HDFC, HDFCB, ICICIBC, COAL, TTMT, KMB compared to previous expiry.
• Total OI value at the start of Mar series is at INR 2800 bn compared to 3109 bn at the start of Feb Series

To conclude from this, around 300 bn worth of position expired market wide, while Index futures (largely Nifty) witnessed expiration of ~100bn. Within stock futures, heavy expiration was in Nifty names. Therefore, clearly there was a good chance for markets to move up. Add to it, global markets were showing strength. All this prompted to a good start to March series.

With this in mind I picked up some Nifty 10600 Calls at the start of the day at ~Inr 75/-. One clear issue with the market currently is that the upmoves may not last long. Therefore, I decide not to carry my position into the next week and covered it at Inr 100/-.

Market positioning at the start of the series is an important data for analysis as it is determines the course for next couple of sessions and generally offers a trade.

Happy Trading

Cheers!!