S2Ep125 | Breadth Broke To 0.164, And The Only Bid Left Was IT |16th Sept Wednesday

I got yesterday wrong and it cost money. That comes first.Graded one and a half out of five. I said we would open 23,440 to 23,490 and we opened 23,576, nearly double the gap. I said we open on the magnet at 23,450 and we opened 126 points above it. I said support at 23,400 then 23,300 and both broke. I said 180 points of implied move were left after the gap and the actual range on the day was 474. We settled 23,118.60, which was also the low of the day.The iron fly, in full. Short the 23,450 straddle, long the 23,650 call and the 23,250 put, 200 wide. Credit at the open 114.45, and at settlement the structure was worth the full 200. That is a loss of 85.55 points, 6,416 rupees on a 75 lot, and it is the full maximum. Here is the separate point: the naked 23,450 straddle, the one I told you not to sell, collected 168.60 and settled at 331.40, a loss of 162.80. The wings cost 54.15 and saved 77.25, cutting the loss by 47 percent. The direction was wrong. The maximum was defined, published before the bell, and capped.And here is the part that is actually useful, because I had already written this rule down. Max pain on Friday's file was 23,450 and I built the whole call on it. Recompute max pain from the settlement day file itself and it is 23,150. We settled 23,118.60, which is 31.40 points from the right magnet and 331 from the one I quoted. The pin did not fail. The magnet walked 300 points during the session and then pinned inside 32 points. The mechanism was right and the snapshot was four days old. On an expiry day the only max pain that matters is the one the board is building that morning.Breadth did not weaken, it broke. 371 advances against 2,263 declines, an advance decline of 0.164, after three sessions frozen at 0.56, 0.56 and 0.58. That is fewer than one stock in seven. And the entire advance list was one sector: HCL Tech up 3.95, Infosys up 3.79, Mphasis up 3.62, TCS up 2.28, Tech Mahindra up 2.26. Seven of the top eight gainers are IT, Nifty IT closed up 2.19 percent on a day the index fell 1.19, and IT is now the only equity index the screener will not sell.The new 22 September board has max pain at 23,350, 231 points above spot, and a put call ratio of 0.657, with calls added 5.73 crore against 3.12 crore of puts. 23,400 is the resistance, holding both the biggest call add at 42 lakh and the heaviest near money call at 63 lakh. 23,200 is the mirror. The board is pricing a 200 point box and we are sitting 81 points under the lower edge of it.The basis changed mechanic for a third time in three sessions, to 105.30 from 87.10 with futures open interest rising by 1,06,015. Rising basis on rising open interest is fresh buying of the premium, so that is long unwinding, then short covering, now fresh buying. And it happened on the day with the worst breadth of the run.The foreign book was right all along: short 2.91 lakh futures, short 3.13 lakh calls, long 6.79 lakh puts. That short has risen every session of this run and yesterday is the day it got paid. A winning short does not cover.The Sensex expires tomorrow with max pain at 74,500, which is 496 points above spot, and no expiring future at all, because the 17 September is an options only weekly.The plan. Implied open 23,110 to 23,150. Resistance 23,350, then 23,400, then 23,500. Support 23,200, then 23,000, then 22,700. Week band 22,700 to 23,540, straddle 359, implied move 449. Reclaim 23,200 and the box is live. And recompute the magnet every morning, including expiry morning. That is what yesterday cost me.Data from NSE and BSE BhavCopy, 15 September close, with global levels read on the morning of 16 September. Streams first on rupeecase.com.Educational content only. Not investment advice.