Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

State of Nifty Options and ATM Straddle ahead of Market Reaction to Exit Polls and Election Results

2 min read

Exit polls suggest a strong performance by the NDA, with seat predictions ranging from 358 to 400, compared to 353 in the 2019 results. This dominance by the NDA is likely perceived positively by the market, implying continuity and stability in governance. However, the high volatility and significant open interest indicate that traders are still cautious and prepared for potential large movements.

Exit Poll – 2024 Election Results

The Nifty’s hourly chart shows recent high volatility with peaks and troughs, trading currently around 22,547.95. Increased volume towards the end of the chart indicates strong trading activity, likely driven by the anticipation of election results.

Nifty Spot Data and 06 May 2024 and Weekly IV Levels

High Implied Volatility: The high IV of 49.98% suggests that the market expects large price movements due to the upcoming election results. The ATM straddle is ideally a high risky bets for scenarios with high expected volatility, as it benefits from large price swings regardless of direction. It is how we can directly measure the risk taken by option sellers.

Nifty 06 May 2024 – ATM Weekly Straddle Charts



The ATM Spread is wider at 1716 points indicating a huge volatility for next couple of days. I strongly believe one side of the breakeven levels will be tested (breakeven points at 21,692 and 23,408 levels ) ahead of 06 May 2024 expiry

The wide breakeven range (21,692 to 23,408 ) reflects market uncertainty. Traders are preparing for the possibility of a large move in either direction, indicative of the high stakes and potential impact of the election results.

Nifty 06 May 2024 – Weekly Expiry Option Chain Data

The premium bulge across call (CE) and put (PE) strikes in the Nifty option chain indicates heightened market anticipation of significant volatility due to the upcoming election results. This is driven by high implied volatility (IV) of around 49.98%, reflecting market uncertainty and the demand for hedging and speculative positions. The increased premiums suggest that traders expect substantial price swings and are positioning themselves accordingly. While this scenario raises the cost for buying options, it also presents opportunities for option sellers to collect higher premiums, albeit with increased risk due to potential large market movements.

Nifty Weekly Options – Open Interest Data – 06 May 2024

High OI on call options at 23000 and 24000 strikes indicates strong resistance levels. This suggests that a large number of traders are betting that Nifty will not rise above these levels by expiry.

The OI at 23000 CE with a PCR of 0.26 implies that for every put option at this strike, there are approximately four call options. This imbalance indicates bearish sentiment, as more traders are selling calls, expecting the price to stay below this level.

Similarly, at 24000 CE with a PCR of 0.06, the bearish sentiment is even stronger, with significantly more call options than puts.

Low PCRs at these strikes (e.g., 0.26 at 23000 CE) reflect a bearish sentiment, as more traders are selling calls, expecting the market to remain below these resistance levels.

However the OI information is highly dynamic and could swiftly change along with the price action if there is any big gap up.

Monthly IV and IVR Charts

The significant spike in implied volatility from 10+ to 24.6 within a little over a month, combined with an IV percentile of 100, underscores the market’s anticipation of extreme volatility ahead of the election results. The disparity between current IV and historical volatility highlights the market’s expectation of unusual price movements. This situation suggests that traders should be prepared for potential large swings and consider strategies that align with their risk tolerance and market outlook.

The overall sentiment is one of cautious optimism. While the NDA’s strong showing in exit polls suggests stability, the high implied volatility and significant open interest reflect traders’ preparedness for large market swings.

The exit poll results show a strong performance for the NDA, which is likely to be viewed positively by the markets in terms of stability and continuity. However, the high implied volatility and significant open interest in key strikes indicate that traders are still bracing for potential large movements. The actual election results will be closely watched, and any significant deviation from these predictions could lead to increased market volatility.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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