Tracking PUT CALL Open Interest

[hills_5000]

HI ,

IMO option writing is done by deep pockets ( Smart Money) which means that if 5100 puts are being written then they expect these puts to expire worthless / almost worthless. So it's either hedging of portfolios or the retail folks buying these puts to cater for / expecting a downside.

In any case changes in OI happen very fast during a day's session so still too early to make a call on what's going to happen.

regards

Puts are building at and above 5100 level.. yesterday 5100 put were up by 15%. That means that someone is buying these puts at 85 Rs. of average mkt price (H+L / 2 of 5100 put today). This is indicating that the move up is going to be difficult.. with possible close below 5100-85 = 5015 for month end so that these PUTs give some return..


Happy Trading

 

[AW10]

I beg to differ Sir. Kindly clarify the confusion.

Put OI might have decreased as old PUT writers have bought the PUTs to close their open position. Why would someone do that when they are already in a sublime winning position? Maybe, they (read - SM) are sensing a fall, may not be as low as 4700 but maybe something like 4800-4900 which would not give them opportunity to free their money a bit early.

Appreciate that u differ from my views Hitesh.. That shows you are thinking.. (and reading my post seriously).

Coming to your doubt regarding far OTM PUTs are getting closed. Let me list my points here
1) This could be the people who bouth these puts for protection.. They know that they don't need such OTM protection.. so close the position. get back whatever possible and build protection with Dec Puts.
Watch Dec OI on these levels.. 4000 /4300 put OI already 22 lacs.

2) Who sold these PUTs - There is no more juice left in the position now. So better to release the money and transfer the position to next month.

The problem with these OTM strikes will be that in next few days, they will loose liquidity cause nobody will buy them. Then these people will not be able to do what they have done today.
Otherwise, Put sellers will be stuck till month end for their margin to be released which they need for next month.

3) Going forward as not enough of time left in these options, such far OTM will have very less probablity of coming to money. They are already having less then 2% of probablity. (In 5 days of trading life, there might be <2% time when market has travelled the distance of 20% . So even if market falls, u will not see any action in these OTM options. When there were 10 days of life left, may be the probablity was 10% that mkt could travel 20% distance but now the situation has changed. And with each passing day, it is going to get worse.
Lets not forget that Smart money deals in big lot.. (not like <10 lots of average retail trader). So for them liquidity is lot more important then what we could imagine.

If you want to learn the behaviour of OTM options, then do track them for next 1 week along with the nifty spot.price.and see how they behave.
This is classic case in option trading where you option would loose value even if mkt goes in your direction.

Hope you see a different picture now.. and agree little bit more with me now.

Happy Trading.

 

[AW10]

HI ,

IMO option writing is done by deep pockets ( Smart Money)

I don't think it is only Smart money who can write the Options. Anybody who has sufficient margin can write it. And from OIs perspective, we always have buyers = writers or sellers. so for each put written, there is one buyer.

And Smart Money also buys the options. In option trading, there are time to write options and their time to buy it. SMs understand it pretty well and option buying is also part of their strategy. They don't write naked options, if they are rally Smart. Otherwise, they would have already gone out of business in Oct-08 or in May-09

Challange is to find out whether SM is writing or SM is buying.
So when 5100 Put OI is going up since last two days in Lacs of qty,, then IMO, it is not that SM is writing these ITM PUTs. But they are buying here.
I might be wrong. Intention could be very well for hedging or for trading, but that doesn't matter. Bottomline is lacs of new PUTs are getting traded.

In this thread, thats what I have been posting and trying to judge the SMs real action of SM.. buy going away from typical myths that "SMs are always option writer".

I believe they are also buyer, and when they buy, it is novice trader selling to them.. and when they sell, it is novice trader buying from them.

Happy Trading

 

[prasadam]

Well said AW10.

The so called Smart Money need not be option writer only.

I don't think it is only Smart money who can write the Options. Anybody who has sufficient margin can write it. And from OIs perspective, we always have buyers = writers or sellers. so for each put written, there is one buyer.

And Smart Money also buys the options. In option trading, there are time to write options and their time to buy it. SMs understand it pretty well and option buying is also part of their strategy. They don't write naked options, if they are rally Smart. Otherwise, they would have already gone out of business in Oct-08 or in May-09

Challange is to find out whether SM is writing or SM is buying.
So when 5100 Put OI is going up since last two days in Lacs of qty,, then IMO, it is not that SM is writing these ITM PUTs. But they are buying here.
I might be wrong. Intention could be very well for hedging or for trading, but that doesn't matter. Bottomline is lacs of new PUTs are getting traded.

In this thread, thats what I have been posting and trying to judge the SMs real action of SM.. buy going away from typical myths that "SMs are always option writer".

I believe they are also buyer, and when they buy, it is novice trader selling to them.. and when they sell, it is novice trader buying from them.

Happy Trading

 

[findvikas]

I might not be right about an instant down slide but absolutely sure that we are not going to break past or even touch 5200 until next month or might have made the maximum highs for this calendar year.

 

[findvikas]

I have been doing this research with OI and came up with a new ratio of mine... Bull/Bear ratio.. which I call as BBR.

I decide the trend and a possible reversal with this BBR ratio... this is very much like PCR. A value below 1 is bearish and above 1 is bullish... a gradual decline in ratio coming from all the way above 1 to 1 or below is an indication of a trend reversal attempt by bears. Similarly a growing ratio below 1 to near 1 or above 1 shows that bulls are taking charge.

I am not asking you to bet on this as its very much "research in motion" ... I have captured this data for past 6 months and it gave us decent indications. I will outline the formula to calculate the BBR later.

It showed the first chance of bearishness and a possible trend reversal on 21st Oct when market closed at 5081.35 and havent really shown any visible recovery in the BBR but instead the BBR went down to 0.087 as of yesterday's close

I will keep my bearish view until it moves above 0.90-0.95

Comments are welcomed

 

[enygma]

Talisman,

That could be the intraday players getting out around the close. They must be waiting for a breakout/breakdown which did not come their way yesterday and must be closed the positions.

Regards,
Enygma.

Hi,

I would probably take the liberty of asking an innocuous question that I was not able to comprehend. I use ODIN and while watching some stocks Futures move, they were continuously adding OI position. I mean from the morning the added positions were like 2-5-8-15% range but in last 20 minutes or so those with added percentage as high as 15 got reduced to 3-4%. This specially happened in stocks who were moving in a very tight range. What does that signify or am I reading too much into it?

Thanks.

 

[AW10]

Talisman,

That could be the intraday players getting out around the close. They must be waiting for a breakout/breakdown which did not come their way yesterday and must be closed the positions.

Regards,
Enygma.

Talisman, I will agree with Enygma's view. IMO, Funds houses, FII etc are not too much in stock OPTIONS due to low liquidity. They would instead use Nifty to protect/leaverage their portfolio.

While reading OI change, I generally ignore anything with change of 10 to 15%. It is normal mkt behaviour. And if the OI number is small, the % change will give distorted info.. (On OI of 100, even if OI just goes up by 20 contracts, means 20% change.. but in reality it is just 20*2.5 Lac = 50 lacs worth of transaction which is nothing.

So don't read too much into stock OI.

Happy Trading

 

[hiteshsjoshi]

OI based on EOD.

%chn 18/11_CE 19/11_CE Strike 19/11_PE 18/11_PE %chn pcr_19/11 pcr_18/11
								
			Nov 2009					
-5%	254350	240900	4000	1046350	1065850	-2%	4.34	4.19
-9%	24850	22650	4100	602200	666650	-10%	26.59	26.83
-13%	21000	18350	4200	1039000	1079100	-4%	56.62	51.39
-8%	28950	26750	4300	1767650	1785700	-1%	66.08	61.68
-11%	70500	62900	4400	2292450	2333700	-2%	36.45	33.10
-25%	232850	175250	4500	3751700	3880900	-3%	21.41	16.67
-9%	729050	664650	4600	3963500	4008050	-1%	5.96	5.50
-5%	2052450	1955000	4700	5514150	5440050	1%	2.82	2.65
-4%	2064050	1987200	4800	7230450	7580550	-5%	3.64	3.67
10%	2458750	2706650	4900	5479300	6088150	[COLOR="Red"]-10%	2.02	2.48[/COLOR]
12%	4084050	4578300	5000	4320950	5471450	[COLOR="red"]-21%	0.94	1.34[/COLOR]
10%	4367200	4817700	5100	1718450	2082150	[COLOR="red"]-17%	0.36	0.48[/COLOR]
-7%	3198900	2962900	5200	230450	263900	[COLOR="red"]-13%	0.08	0.08[/COLOR]
0%	2042950	2039200	5300	64300	63650	1%	0.03	0.03
-4%	1092900	1048900	5400	33200	33300	0%	0.03	0.03
-2%	828250	813450	5500	64000	79950	-20%	0.08	0.10
-1%	354750	349500	5600	45150	45400	-1%	0.13	0.13
0%	225700	226200	5700	38150	39400	-3%	0.17	0.17
2%  24131500  24696450  Total  39201400  42007900  -7%  1.59  1.74
								
			Dec 2009					
0%	164350	164450	4400	1032000	1003150	3%	6.28	6.10
1%	281750	283650	4500	2801100	2654300	6%	9.88	9.42
-1%	240500	237700	4600	1521400	1539500	-1%	6.40	6.40
0%	367100	365950	4700	1599300	1580650	1%	4.37	4.31
-5%	878600	838600	4800	1542000	1545500	0%	1.84	1.76
3%	1466800	1506600	4900	1097000	1099650	0%	0.73	0.75
10%	1197550	1313400	5000	1319500	1348750	-2%	1.00	1.13
3%	981900	1015700	5100	302350	300550	1%	0.30	0.31
3%	1228400	1267100	5200	135350	135750	0%	0.11	0.11
6%	1067750	1132600	5300	15900	15300	4%	0.01	0.01

Lot of ITM and ATM Put writers have covered their positions today. A further panic in Nifty 4800-5000 Put writers can bring down the Nifty considerably.

 

[hiteshsjoshi]

I have been doing this research with OI and came up with a new ratio of mine... Bull/Bear ratio.. which I call as BBR.

I decide the trend and a possible reversal with this BBR ratio... this is very much like PCR. A value below 1 is bearish and above 1 is bullish... a gradual decline in ratio coming from all the way above 1 to 1 or below is an indication of a trend reversal attempt by bears. Similarly a growing ratio below 1 to near 1 or above 1 shows that bulls are taking charge.

Comments are welcomed

Sounds good. :thumb:
Would wait for your BBR formula!!