Know your R:R before RR presents his first policy on Friday

Since a big event is approaching, it is necessary that short term traders keep an eye on the R: R

(risk: reward) before RR speaks.

An attempt:

Since the low of 5118 on 28th August, Nifty has given a fast and ferocious rally to

5957 in just 3 weeks.

Lot of traders either missed the rally completely (which is not a problem), but were

attempting shorts on any weakness seen on 1 min or 5 min charts.

Media can give this rally any name – the RR rally or the Ganpati rally, the fact is Nifty was at a major support.

The D-day is approaching---Now what? Those who missed the rally, are desperately looking for reasons to go short.

A study of the Options data for September reveals that a ‘top’ might not be so close as some think although a ‘top’

for this expiry might be approaching.

As seen from the following chart, although there seems to be a resistance from the CE writers at 6000 strike price,

the Put writers have created positions at almost every strike price.

One extremely important observation is that the highest OI in Calls or Puts for a particular strike price which normally

tends to go above 90 lakhs or even 1 crore, is just around 60 lakhs in the current expiry period.

 

Chart showing OI at various strike prices:

 

 

The PCR (Put-Call ratio) at individual strike prices also reveals that resistance lies ahead,

since the PCR at 6000 isjust 0.26, although the PCR at 5900 has been steadily increasing

and is now 0.99.

Chart showing PCR at various strike prices:

 

Thus in the even of any sharp rise post Fed or post – RBI policy, watch the band

70-75 in the 5900 PE for further direction (chart below).

 

 

If the premium for the Put reaches that band and the PCR at 5900 has stopped rising

and that at 6000 is not rising, THAT might be the TOP at least for this expiry,

and one can buy the 5900 Put with a stop loss of say Rs. 10.

However, if the PCR at 5900 and 6000 keeps rising, and the above levels are broken

on the 5900 PE, a sharp spike cannotbe ruled out.

As of now, expiry seems to be nearer 5800 (or even below) than 6000.

More updates in Live markets as we go ahead………

Please do comment on the posts.

Happy trading………