Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Nifty Futures – State of the Market Before the Election Results Week

2 min read

The big week filled with events is about to start and its good time to have a check up what happened so far in this week and what is the current state of the market and what is the context going on.

1)Buyers bought in last two trading session at every single dip

Last two days of rally is relentless and would have smashed out every short term short sellers out of the market. but more importantly buyers bought at every micro dip and sellers would have covered out of frustration.

Most likely the consecutive dip buyers nature is a short term play and once the event is over they sort of unwind their positions or if the event is turning against them they are the first one to liquidate their positions. The reality is too many such players onboard in the last two trading days.

Even small bad news or negative news sentiment could trigger faster liquidation in the markets.

2)Implied Volatility , Option Premium and Open Interest

At the money implied volatility is at 40-41 levels and that explains the costlier option premium on both calls & puts and huge time value is already factored in. Higher the option premium, higher the uncertainty in the markets.

High Option premiums make totally uncomfortable for the option buyers and the higher volatility makes the option writers totally uncomfortable. It is a difficult market for the option writers.

Nifty Option – Weekly Option Chain

Nifty Open Interest is highest at 12000CE and 11000PE strikes in both weekly and monthly options which indicates that participants prepared for wider price action movement for the next week.

Nifty Open Interest – Weekly Options

High volatility also makes the risk higher and reward lower for the naked option buyers. Hence, option buyers have to miss the trading opportunity and find it in asset classes in the mean time especially the rewarding nature reduces a lot.

If one trading in Nifty Futures then they have to reduce their positon sizing and carry with comfortable position sizing.

3)Rising India VIX

India VIX shot from 14.5 levels during 19th Mar 2019 to 28.08 levels before the election results week. Intraday volatility of the Nifty Futures is hitting 120-170 points on an average.

India VIX shot up before the Election results week

4)Nifty Daily Price Action

Nifty Daily Charts

Nifty bounced more or less from the visual level – previous swing high established around 11160 levels.

5)FII Option Data

FII Option Data

FIIs so far haven’t added much of index long calls/index long puts for the current series rather they sold both index calls and index puts. Selling is seen aggressive in calls than the index puts.

5)Social Media

By this time political view on markets would be sky-rocketing in whatsapp, telegram, facebook, twitter channels. Traders would be discussing how the election results impact in the short run and investors would be discussing how the impacts of the results in the longer run.

If you are looking for unbiased information as a short term trader I would say that next week, one has to be a political atheist. Rather focusing on the political developments focus on the price, context and focus on your trading process and simply ignore the noise.

Those noises will wade away in a week or two. Remember one thing in mind market reality is far different from what we think based on the happenings/event around us.

6)Nifty futures – Market Profile

Nifty futures hit its first and immediate resistance point around 11440 levels with back to back possible stealth auction. Failure to cross above 11440 levels could bring a faster test towards 11150 again.

Nifty Futures – Market Profile Charts

7)For System Traders

Binary events like exit poll announcements & election event results carries systemic risk in carry forward positions. If you are trading systems then one should stay away from carrying positions before the events or take lighter positions for carry forward.

Any events – its better to put a rule/ban on system till the event sentiment is over which prevents from unwanted outliers if any.

8)For News Based Traders

Here, is a snippet from ET on exit polls and how biased those exit poll figures are. Definitely exit polls have short term impact on markets but nevertheless, stay focused on context rather than exit poll events.

Source – Economic Times

Overall it is going to be an interesting week as usual going to keep all the investors and traders at the edge of the seat. Weird price movements are always possible in the given scenario. Traders focus on trade setups and give more priority to risk. Over betting or over trading in this scenario help a trader very little than damage it facilitates.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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