Nifty Open Interest Analysis

[SexyTrader]

Its pretty simple if you understand Option writers mindset. He is playing the high risk low reward game. For a limited profit, he is taking unlimited risk... so if you were in his shoes, you would take the path of least resistance. In this case, 5800 in Nifty is a foregone conclusion. But there are still people out there ready to pay a premium of 8rs for a gap of 140 points.. even then it wont be enough to put him in loss... so he is basically getting 8Rs on sum invested with a remote chance of it ever hitting

Look at Columbus's chart on Option convergence... you can see that expiry is between 5600-5700 range considering all other options are sub 10 rs

But if the OI is this HIGH in 5800 CE, dont you think the markets would want to touch 5800 spot once ?

I mean whats the use of this OI if its only the sellers scraping for 8/- ? There must be more to it

Such a huge OI is never seen before, unless its a rally! So for some 8/- how many would really get in to get screwed is what I'm thinking

Whats your take on what I stated ?

 

[Option.Trader]

I mean whats the use of this OI if its only the sellers scraping for 8/- ? There must be more to it

Such a huge OI is never seen before, unless its a rally! So for some 8/- how many would really get in to get screwed is what I'm thinking

Whats your take on what I stated ?

Its always been the case.. option writers jump in when they see a glaring opportunity.. a.k.a eat up entire premium with least risk and a margin of safety

 

[SexyTrader]

Its always been the case.. option writers jump in when they see a glaring opportunity.. a.k.a eat up entire premium with least risk and a margin of safety

Well writing options is not as easy as buying options though I feel writing options is another ball-game that requires extreme caution unlike buying.

Anyway, say the Nifty were to touch 5800 and then go up by some points, these writers would stand to lose heavily right ?

Considering the mood is bullish right now, why does 5800 seem a foregone conclusion to the option writers is what I'm wondering Say today in case it breaks 5750 upwards, it would head for 5800 and maybe beyond...what happens to these options writers then considering such high OI ?

 

[SexyTrader]

I feel 5800 is yet achievable on the spot Nifty....coz its not all that bad right now :thumb:

I wonder whats the whole confusion....the world situation too looks good, so what are we sulking about in India ?

This month series has been an edge-of-the-seat thriller variety

 

[Option.Trader]

Well writing options is not as easy as buying options though I feel writing options is another ball-game that requires extreme caution unlike buying.

Anyway, say the Nifty were to touch 5800 and then go up by some points, these writers would stand to lose heavily right ?

Considering the mood is bullish right now, why does 5800 seem a foregone conclusion to the option writers is what I'm wondering Say today in case it breaks 5750 upwards, it would head for 5800 and maybe beyond...what happens to these options writers then considering such high OI ?

Well see it this way... there are 4 trading sessions left and we still have awfully lot to do to get upto 5800... thats a good 140 move from here almost 2.2% and it needs to be sustained, we are seeing supply coming in at higher levels.
Now consider 5800PE...spot nifty is 5665, and put premium is 126 whereas difference is 135, so its 10RS already in the money ! whereas 5800CE which is 140 RS out of money, is trading at 8RS... see the amount of premium you are paying for the call
So its a bit like lottery, if tomorrow we have confirmation of RBI easing rates on 30th , then it may shoot up and close at 5800.. and still 5800 call buyers will loose money
Writers, unless 5808 is not broken , are safe...they can always put a stop loss once they see trades crossing known resistance of 5740

 

[SexyTrader]

Well see it this way... there are 4 trading sessions left and we still have awfully lot to do to get upto 5800... thats a good 140 move from here almost 2.2% and it needs to be sustained, we are seeing supply coming in at higher levels.
Now consider 5800PE...spot nifty is 5665, and put premium is 126 whereas difference is 135, so its 10RS already in the money ! whereas 5800CE which is 140 RS out of money, is trading at 8RS... see the amount of premium you are paying for the call
So its a bit like lottery, if tomorrow we have confirmation of RBI easing rates on 30th , then it may shoot up and close at 5800.. and still 5800 call buyers will loose money
Writers, unless 5808 is not broken , are safe...they can always put a stop loss once they see trades crossing known resistance of 5740

I feel RBI in the current scenario will ease the rates, coz the world situation is pretty bullish....so if India has to move ahead, we have to cut the rates

And I see the gain potential of the writing, but its damn RISKY in the current scenario :thumb:

I feel Nifty would have to go up beyond 5808 too...coz we cannot afford to sulk when even Spain seems to have got themselves a solution

 

[Option.Trader]

Date : 18-10-12
Bulls had a party today. Its better to wait for confirmation to initiate trade

Main highlights
Unwinding of calls(5500-5800) as bears were caught off guard
Writing of Puts (5600-5800) as bulls recaptured 5700
Always when in conjunction, the conviction is high
But for a decisive move beyond 5800, OI of 5800 CE needs to move significantly higher
On futures side, FII's covered their shorts (only net 35 cr) and initiated longs

Buy above 5720 to confirm with trend, SL 5700

 

[SexyTrader]

Date : 18-10-12
Bulls had a party today. Its better to wait for confirmation to initiate trade

Main highlights
Unwinding of calls(5500-5800) as bears were caught off guard
Writing of Puts (5600-5800) as bulls recaptured 5700
Always when in conjunction, the conviction is high
But for a decisive move beyond 5800, OI of 5800 CE needs to move significantly higher
On futures side, FII's covered their shorts (only net 35 cr) and initiated longs

Buy above 5720 to confirm with trend, SL 5700

I enjoyed myself today After some days getting bored, finally got some ACTION

And learnt one thing...this OI thingy is great to play around with.....I will use it ONLY to check the writers/sellers henceforth

The free premium eating mechanism sounds interesting...:thumb: Next time I shall try that with just 1 lot to test the spice coz writing/selling options is pretty daunting than buying....too much to think and worry with selling options I like COMFORTABLE yet RISKY

 

[sjnanes]

what is the outlook for next week

 

[sridhar]

Date : 18-10-12
Bulls had a party today. Its better to wait for confirmation to initiate trade

Main highlights
Unwinding of calls(5500-5800) as bears were caught off guard
Writing of Puts (5600-5800) as bulls recaptured 5700
Always when in conjunction, the conviction is high
But for a decisive move beyond 5800, OI of 5800 CE needs to move significantly higher
On futures side, FII's covered their shorts (only net 35 cr) and initiated longs

Buy above 5720 to confirm with trend, SL 5700

Am starting to get the gist. Please correct me if i am wrong -

1. Call writers are bears & Put writers are bulls.
2. The whole idea of the writers is to be in strike prices which will be out of money & hence expire worthless.
3. Where maximum writing takes place in either call or put is like an opinion poll of where the bears or bulls expect spot to expire Out Of Money. (Considering premium received etc.)
4. The expected direction of movement can be gauged by the relative open interest quantity of relative max. positions level. (ie. if max bears oi is 10 & bulls oi is 20 bulls will prevail.)
5. Situation is dynamic & rate of change of OI is important.

Many thanks.

Now for 1 clarification. - You mention that for decisive break above 5800 5800CE OI needs to increase. Would it not be 5800 PE?

Thanks again!!