The expiry day in the Indian markets is always a special day and tons of analysis has been done on the importance of the closing price on the activity of next month futures.
It is a commonly held belief that the expiry closing price acts as a support or resistance to next month’s price and action.
The market action in the afternoon was expiry related and put a question mark on where we close tomorrow.However we have two parameters with us -the OI/Vix and Market Profile to see where we end tomorrow.
The range for the day tomorrow based on the Vix formula we know, works out to 5452-5342 on the spot and 5445-5340 in the future. This is just a range and not targets- the nifty should trade between these ranges tomorrow, based on today’s vix.
Now let’s see what Open Interest is telling us :
The 1.3 crore of unresolved OI at 5400 is a very large one and generally should point to a close right around today’s closing levels.
This is the best scenario and also right in the middle of the Vix range of 5445-5340.
However the market is not known to spend an entire day auctioning in a 10 point range! It will push and pull at the OI writers at this strike to wean them off their positions.Frankly speaking the 11 lacs written today at 5400 call, one day before expiry is downright stupid and goes against my belief of writing calls.These guys would have been better off purchasing the 5400 put today, if their view was that bearish.
Let’s look at what the volume profile chart says.
5386-5398-5421 are the value areas for tomorrow.
We already know that 5386 is a good support for the market and halted the downward momentum of the afternoon.If price manages to auction below this level tomorrow, then we get to the other end of the VIX range at 5340 and the 5400 call writers of today do not look that stupid!
However, should the Nifty hold value area low at 5386, then I’ve painted three yellow rectangles on the chart representing a low vol region which represents a chance for the market to auction there tomorrow.This zone between 5408-5428 should decide the OI at 5400 if it auctions for a while there.
The open should make things more clear..