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Hello everyone. This is the Nifty's
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price action on the last weekly expiry.
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I mean till the afternoon it was
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rangebound but after that all of a
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sudden it had this massive breakout. So
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if it happens again, how can we protect
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ourselves or even how can we try to make
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some money out of it? I mean I'm not
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saying it's a foolproof one but these
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are the list of the signs I saw this
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time. I hope it will be very useful for
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the future. So without delay, let's get
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started. First of all, let's understand
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who controls what. In any given session,
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by the end of the trading day, this is
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typically how the open interest looks.
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Clients or retail traders usually hold
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somewhere between 55 to 60%, fi hold
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around 15 to 25%, proprietary traders
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hold about 20 to 30%. So 99% of the time
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this is how the participant wise open
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interest in the index options looks. You
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might ask me if retail traders hold the
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majority of the open interest doesn't
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that mean they control the option
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market? The answer is no. Well the
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number of retail traders is massive over
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25 lakh participants. Their individual
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capital and trading strategies are
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typically limited. On the other hand,
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the number of propriated traders is
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roughly 200 and there are around 200 FIS
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as well. Interestingly, I believe that
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about 25% of the FIA positions are
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actually from proprietary traders
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operating under the FI name. So in
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reality, except for the 3 days around
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monthly expiry, most of the daily Nifty
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price action is controlled by these 250
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large proprietary traders. Let me
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explain how. First, please keep in mind
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the end of day participant wise open
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interest like how much each participant
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holding. Now let's look at the daily
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trade volume data. In direct contrast to
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the open interest distribution,
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proprietary traders do about 60% of
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intraday trading volume while retail
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traders do only around 30%. Fi do even
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less just 8 to 10% of the daily trade
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volume. Think about it. 60% of the trade
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volume is controlled by just 200 people.
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So, how can we say that prices aren't
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being manipulated? Let me give you
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another set of stats. On any given
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non-expir day, the total future index
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open interest is around 4 to six lakh
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contracts. The total option index open
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interest range from 25 lakh to 60 lakh
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contracts. The total options trading
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volume range from 4 crore to 10 crore
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contracts. If you take the average
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ratio, this is how it pans out. One for
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future open interest, 8.5 for option
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open interest and 137.75 for options
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volume. This means the trading volume is
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16 times the options open interest. And
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proprietary traders use this volume
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trade and the future index as their
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advantage to influence the option
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expiry. So it's no wonder in my view
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there is no doubt that the option market
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is largely controlled by proprietary
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traders and now more people are aware of
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this and proprietary traders also know
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that more people are aware that's
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exactly why they acted so cleverly last
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week I mean at the end of Friday 9th May
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propriated traders held net 3.9% of
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their open interest on the bullish side
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then at the end of Monday it didn't drop
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much they still held net 3.1% bullish
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open interest. However, on the Tuesday
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end compared to Monday, net 3% on the
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bullish side, proprietary traders
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dropped to net.3% on the bearish side
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which is a clear indication of stance
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reversal from bullish to bearish. Also
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note at that time in the future index
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proprietary traders were holding 73% of
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their open interest on the short side.
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So this participant wise open address
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analysis was signaling either a neutral
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rangebound expiry or a bearish expiry
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since there was no major external events
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was scheduled. Hence based on this I
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took a bearish position on Wednesday
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afternoon when nifty was trading at
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24,650. So I sold the 24,800 call
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options at 35 rupees per lot and for
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protection I bought 25,000 call options
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at 15 rupees per lot. But after
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Wednesday's trading hours, as usual, I
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did the participant wise open interest
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analysis and came across this info that
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propriarated traders hadn't actually
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turned bearish. They had flipped back
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again to bullish. In fact, in my
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Thursday morning pre-market video, I
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mentioned about that proprietary traders
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had trapped me into selling the call
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options. If you want, watch the options
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open interest analysis part of that
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video. I mean at the end of Wednesday
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their position had shifted from bearish
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to net positive 2% open interest on the
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bullish side. So at that moment itself I
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knew I had made the wrong trade on
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Wednesday. That's why I highlighted it
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in the pre-market video and that's the
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first warning to me. Now as a rational
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trader I should have exited the position
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on expiry day opening itself but I
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didn't. Instead, I hoped that things
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would turn in my favor. And we all know
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hope is the biggest enemy of a trader.
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And this time, I fell right into the
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trap. Then comes the second warning. I
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mean, this is how the typical time decay
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for the option premium looks like.
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Closer the expiry, the time decay
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becomes very steep. So if you compare
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the last 15 minutes of the penultimate
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day with the opening on the expiry day,
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there is usually a significant premium
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erosion around 15 to 20%. In my case,
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I'm not in the Indian time zone. When I
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woke up at 7:00 a.m. my time, it was
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already 11:30 a.m. in India. Now if
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Nifty was trading at the same level as
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Wednesday's closing say around
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24,650 then there should have been a
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premium erosion of at least 30 to 40%.
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In fact that expected erosion was my
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hope. I thought even if Nifty moves
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slightly above 24,700 the time decay
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should favor me I should be okay no
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major impact. But at 7:00 a.m. my time,
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11:30 a.m. Indian standard time, Nifty
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was still trading between 24,550 and
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24,650. And yet there was no premium
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erosion. On the contrary, in fact,
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premium increased by 2 to 7%. Despite
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Nifty was trading little negative for
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the day. I mean, think for a second.
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Only 4 hours left to expiry and the
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strike price was 200 points away. The
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premium on 24,800 call options increased
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from 35 rupees to 40 rupees or 50 rupees
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per lot. And not just that even after
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between this Indian time 11:302 till
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1:00 p.m. Nifty traded between 24,580 to
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24,650 and for that whole period premium
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didn't drop at all. As I said it
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increased. I kept wondering where is the
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time decay. That's when I realized
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something is off. If premiums aren't
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falling despite rangebound movement and
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time decay pressure, it means for some
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reason in the market someone must be
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actively buying call options. That's the
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only reason why premium was not
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dropping. And that was the second very
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big warning. We should always listen to
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what story the premium is telling us.
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Now coming to my decision-m I knew both
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these warnings were clearly telling me
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to exit but I didn't. I looked at the
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global cues there was no positive
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momentum and no signs of a strong
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European market opening at 12:30 p.m.
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where the second time DK lever is
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present. For example, if the European
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market opens flat, the same option
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should drop further 5 to 10% premium due
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to time decay lever and the lack of
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sentiment boost. And that's exactly what
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happened between 12:30 p.m. to 1:00 p.m.
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Unfortunately, I had a work meeting at
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that time. And instead of cutting the
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position, I hoped all would be fine.
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Then the sudden rally came and I got
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trapped. Finally, around 1:30 p.m., I
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decided I had waited long enough and
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booked the loss around 5,000 rupees per
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lot. So, there are three key takeaways
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for me. One, I mean, Indian derivative
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market is manipulative. We can't deny
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that. And at the same time it is what it
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is. We can't challenge the system. So we
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must accept it and adapt accordingly.
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Then second based on our daily option
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open interest analysis I already knew on
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Wednesday night that I had taken the
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wrong position. So on the first
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available opportunity on expiry day I
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should have closed the trade and more
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importantly I need to stop relying on
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hope in the stock market. Third and this
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is extremely important. We must
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understand the story and price action
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behind the premium especially on the
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expiry day like how time decay is
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playing out where are the buyers what's
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happening on the bid code all those etc
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and much more important we must act
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based on that information these are the
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three key lessons for me I learned from
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last week's my trading screw-up so
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that's all in this video hope you all
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got some useful information please
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consider subscribing the channel and
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liking the video so so that it will help
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me with the YouTube algorithm and also
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motivate me to do more. Please don't
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make any investment decision based on
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this. As a matter of s advisor, I'm
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doing this for me and viewers
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educational purpose only. Thanks for
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watching.
