Mentoring Session 4, Day 3: 27 May 2021

Expiry Day & Trading Ideas

Hello Everyone,
We expect that today’s Trading session must have been really special for each one of you. It
was a great session to learn about the Market Sentiment and how it can swing from one
extreme to another throughout the day. Today’s session was a Monthly Expiry session and we
need to make some special preparations for such a session. Kindly take note of following
proverb

“To be prepared is half the victory.”

I guess you must have heard this before but why we are stressing it here is because of the fact
that it applies to Trading field as well.
So before you open your trading terminal you must have a plan ready for the day.

So first things first, what should be the desirable objectives of a trading plan?
While doing analysis, we must be clear that the plan should give us a clear trading direction
for two periods in the expiry session. The morning period and Closing period.

In this exercise of Expiry Day Analysis we shall learn to prepare two plans

Morning period ( 1 hour after market opens) is most important because it is usually based
on pre-market factors and accounts for a major portion of the price range of the entire day. The
price movements we get in the initial 1-1.5 hours are significant ones and usually accompanied
with momentum. So having a trading plan for the morning period can give great results.
The Closing Period (1-1.5 hours before 3.30) of Expiry Day is also very crucial as we get
some wild movements with momentum which can also be caught if one does proper intraday
analysis of Open Interest.

As you must be aware that we discounted the concept of “Open Interest” in Day 2 document but
we will include it for today’s session.

Though we would try to explain Open Interest concepts in simple language we strongly suggest
you to go through basics of Open Interest by going through Open Interest chapters in OI Pulse
Manual and viewing this video

https://youtu.be/MML3Od9DxuA

So let us start preparing the plan for Morning session by analysing following factors
A. Price & Volume Movements : Previous Day, Weekly & Monthly
B. World markets
C. Open Interest Data

So let’s begin

A. Price & Volume Movements : Previous Day, Weekly & Monthly

Since this is an Expiry session we need to take into consideration the Price and Volume
Movements for the entire week and the Month in addition to the Previous day to arrive at a
conclusion.
We encourage you to do it everyday on your own, it would help you in the long run.
Previous Day Analysis

Previous Day Analysis

So if we analyse Previous Day then we can make following observations

● The Opening was bearish as price came down after opening.
● PREVIOUS BULLISH MOVE: The bearishness was only “Mild” as the Bears couldn’t
break 34500, the level from which Bulls took the market higher.
● UNSUCCESSFUL BULLISH MOVE: The Bulls tried to take the market higher but
couldn't sustain the up move as we got Red Volume Candle immediately after large
Green Volume Candle.
● CONSOLIDATION AND UNSUCCESSFUL BEARISH ATTEMPTS:This was followed by
a phase of consolidation where Bulls couldn't take the Markets higher but resisted every
attempt by the bear to take the Markets lower. This is evident by the fact that Price
stayed above VWAP and we got no consecutive Red Candles with Volume > 50K.
 ● BEARISH CLOSING:Towards the end of the day Bears again tried to dominate and this
time they were successful in closing the Price below VWAP and its downward movement
was accompanied with Volumes.

So on basis of Previous Day Price and Volume movement we can make following analysis
● It was a range bound day and both Bulls & Bears consolidated their positions.
● The Bulls couldn't take the price to PDH thus 35200 the PDH would be a strong
Resistance apart from today's high of 34990.
● The Bears couldn’t take the price below 34500, the exact level from where Previous
Bullish moved (as identified by 2 consecutive Bullish candles with volume >50K). Thus
34500 will be a very important Support Level. Since it's a round strike (multiple of 500) ,
it becomes more important.
So on basis of Previous day
Important Support: 34500
Important Resistance: 34990 & then 35200.
Previous Week Analysis
For previous week we will use time frame of 1 hours (U can choose any tf as per your
convenience)

Following observations can be made out of Weekly Chart

● The Bulls dominated the Week right from the beginning.
● Important Resistance of 34247 was broken after testing it a couple of times. Thus now
this will be an important Support Level.
● After breaking the Important Resistance level price has consolidated.
 ● There have been more and higher Green Volume Candles than Red ones.

Thus on basis of Weekly chart following inferences can be made

● The Week has been dominated by the Bulls.

● 34247 was broken by the Bulls to prove their dominance, thus it would be a very
important Support level.

Important Support Level :34247

Important Resistance Level : 35348 (PWH)

Previous Month Analysis

For previous week we will use Daily time frame (U can choose any tf as per your convenience)
By observing the Price chart on the Daily time frame and analysing the last one month we can
make the following observations.

● The undertone of the day was Bullish as price has moved higher while making smaller
retracements.
● Red candles are less in number and in descending order as compared to Bullish
Candles.
● RSI has been around 60 (in Bullish territory)
● 34247 was an important resistance that has been taken out

Thus we can make following inferences

● The Bulls have dominated this Month and they will not give it easily to the Bears
● 34247 will be a very important Support Level for the Bulls to defend
● The region from 35200 to 36500 is a zone of congestion where Price previously
consolidated.
● Thus price is likely to get attracted to this zone

So now if we combine daily ,weekly and monthly analysis we shall have following observations

1. 34247 is most important Support

2. 34990 is immediate resistance.
3. Though Bears have started appearing in the system but Bulls will not give up certainly
below 34247
 B. World markets

For World Markets we shall primarily look at two data sets the Dow Jones(Spot) of previous
session and US30 Futures (till 9.00 AM) for analysing Global factors

Dow Jones gained nearly 40 points to close in Green. Though it is Bullish but just look at
intraday fall that makes this gain mildly bullish.
Let us look at what US 30 Futures did till 09.00 AM
US 30 Futures has eroded all the Mild Bullishness that Dow Jones gained in previous sessions.
In such a scenario World Markets are neutral though slightly Bearish.
US 30 Futures shall have to be continuously monitored , if it falls further thenBears will take
advantage of the Global Bearishness.

For opening, World Markets are neutral with a Bearish bias.

So now on the basis of Price Movements and World Markets what do you think should be an
ideal trading plan for Opening.
Gap Up Opening:
Though the probability of Gap up opening is very low but if it happens it would be a good
opportunity to Short it as there is no immediate reason for the market to go up. It may go up
after some consolidation or taking a support at lower levels but there is nothing Extremely
Bullish for the market to go up right at the moment.

Gap Down Opening:

If the Market Gap downs then we expect one bounce from PDL and the region around 34247.
So in this scenario we will wait for the price to reach these levels to take a scalp in the Upward
direction.

Flat Opening:
For flat opening we do not know who is trying to dominate at the opening thus best would be to
avoid Opening Trade in such a scenario. The reason for this is plain and simple there is no
established trend for the day.

Remember sometimes “No Trade is the best trade.”

Even if we get Gap Up or Gap down you should keep your position light at the opening as today
there is no established Trend. Opening trades should be taken only when there is clarity and
today is a day of no clarity.
 C. Open Interest Data

Open Interest is a new concept to many of the new participants. Though it has not been
discussed formally in the Live session, I guess that you have an idea of what it is and how it
should be read.
Though this topic can be a bit confusing for many of you, be assured that you will understand it
well once it is discussed in the class.
I would urge you to go through “Addendum 5” of OI Pulse manual where this topic has been
discussed in detail for the time being.

Let me try to simplify things for you by explaining what we shall be looking for in Open interest

It is a known fact that Option sellers have a much larger say than Option buyers in determining
the course of the market. So we will analyse the actions of Option sellers of both Calls and Puts.
● We will analyse where the writers are dominating and where they are covering their
positions.
● We will also try to gauge the confidence of the options sellers by looking at % change in
price and % change in Open Interest.
For this purpose we will use the “OI Expiry Strategy feature” of OI Pulse.

It would look like this

The idea is to analyse the actions of Option sellers at important strike levels. So for today’s
expiry the important levels would be 34500, 34000 and 35000.

So let us analyse 34500 CE first

Kindly observe that OI has increased from 7,26,375 to 10,14,925. Thus OI has increased by
39%. With the increase in OI the price has decreased by 20%. Thus clearly option sellers have
achieved a micro victory as they just want Option premiums to drop but are they confident
enough that markets can go further down?

How can you know this?

It is possible to know by comparing the % change in OI with % change in price.

Here is the interpretation of different combinations of two variables
 S.no % Change in % change in Interpretation
OI Price

1 > 50% >+50% Buyers strongly dominant

2 >+50% <-50% Sellers strongly dominant

3 <-50% >+50% Sellers are afraid & covering their position

4 <-50% <-50% Don't bother about this

If we do not achieve these combinations then there is weakness in convictions of buyers or

sellers.
So for 34500 CE we have 39% increase in OI but 20% reduction in price, so Call sellers are
not sure about the direction of the market. Though they are a little Bearish

Now if Call writers are not confident that this market can go down let us see what Put writers
believe.

Just see that Put writers also tried to dominate a bit but since the desired levels are not
achieved they are not confident that the market can go higher.
Put sellers are not sure about the direction of the market. Though they are a little Bullish.

Just for clarity just look at data of 21 May. Just notice the % increase in OI and drop in prices.
They were confident that the market wouldn't fall.

So let me summarise
● CALL writers are mildly Bearish but are not confident about aggressive downward
movement.
● PUT writers are mildly Bullish but are not confident about aggressive upward movement.

In a similar manner analyse the data for 35000 especially 35000 CE and 34000 especially
34000 PE. You will arrive at the same conclusion.

The Open Interest data is on similar lines with what we analysed with Price ,Volume and World
markets, so our conviction about our analysis gets stronger now.

In such market conditions it is better to wait for a clear trend to emerge and then trade
aggressively.

Now let us see how the day turned out and what could have been possible trades.
OPENING TRADE

Let us see how the markets opened today

We had a small Gap Down, not a major one. So as per our original plan we had following
actions plan
1. Wait for price to reach PDL and expect a bounce back
2. Wait for price to reach important support of 34247 and expect a bounce back.
The price never reached these two levels in Morning thus there was no trade at all as opening
trade.
In such a situation the best is to wait for correct opportunity.

Trend Identification for the day

One of our proprietary methods for identifying trends for the day is to wait for
1. Two Bullish or Bearish price candles that are accompanied by Volumes greater than
50K.
2. The close of both the candles should be either above or below the VWAP for
confirmation.

This identification is based on years of experience and has been successfully deployed to earn
profits.

So today we got two candle trend identification moves around 11.27 AM.
This 11.27 move was a very significant move on account of following factors

1. Two Candle Move:

 2. VWAP Supertrend Crossover

3. BIG OI MOVEMENT
At this time we witnessed some big changes in OI.
If we are expecting a Big Upmove then what do you think should be the state of mind of a Call
Writer?
He must be terrified and would run to cover his position. Just see what happened
Some serious short covering happened on call side.
Now what do you think Put writers would do at the same time?
They would write more puts and that too aggressively. Lets see what happened

Some serious Put writing also happened

So with so many factors in your favour what should you do ?

Go aggressively Long immediately.

Best trading Opportunity would be

1. Enter in the third candle
2. Buy every dip
In such a scenario further up move is very likely.

If you can identify such a setup and execute at a good speed you can do wonders. But please
remember “Execution is the key.”

Now the trend is clear and there were many trading opportunities to scalp
This was a good entry point for you to scalp or take a positional trade as well as you must
have noticed that price never came back to the start of this Bullish rally throughout the day.

Supertrend Reversal Trade

Around 12.15 the price came down to Supertrend, usually in a bullish setup whenever the price
comes to Supertrend for the first time then a retracement trade is advisable. But for this
particular trade we want to draw your attention to what was happening with US 30 futures.

Just look at Dow Futures for same time

DOW was a falling knife when BN came to Supertrend for the first time after becoming Bullish.

So what should you do in such a scenario?

We advise you to manage your Position sizing according to the scenario. In such a case you
must keep your position light.
Subsequent Trading Opportunities

VWAP RETRACEMENT AT 14.15

This trading opportunity needs a bit of discussion
VWAP is the most important price for the positional players in the market and they try to defend
it at every cost so a retracement is expected when price comes to VWAP after a strong up
move.
So here also you can see that at 14.15 the price dropped suddenly to VWAP so would you take
this trade or not expecting some bounce back?
Though there is nothing wrong in thinking about this trade but kindly pay attention to following
fact

Volume Movement during Downmove

This is something that you must avoid. If the price drop is without Volume then it is a Golden
opportunity to buy Calls in such a scenario.

So what should you do in such a scenario?

We advise you to manage your Position sizing according to the scenario. In such a case you
must keep your position light.
SHORT COVERING MOVES
AROUND 2.45 PM it was a very interesting situation
● Bears had tried to bring the market lower with Volume but Bulls pulled it back.
● Time for expiry is approaching very fast.

In such a scenario where both Bulls and Bears have played their part and as expiry approaches
we expect one to dominate clearly.

SO what to do in such a case?

Buy Both CALL & PUT i.e Long Straddle and exit one leg once the move is clear.

Here if you observe that a strong move was expected around 3.00 PM and both Bulls and Bears
could attack. So better to buy both and wait for one strong move .

Here a strong up move came, so you could have exalted your Put and bought more Calls.

You could have also taken help of BIg OI feature of OI Pulse to gauge the sentiment.
Just observe what happened during this period

CALL SIDE

PUT SIDE
I guess this feature says it all.

So I guess that you must have got a glimpse of the utility of OPen Interest data for Options
trading and why we call OI as “God”.

We shall be discussing a lot of features of OI Pulse related to decoding Open Interest Data that
would help you to gauge the market sentiment.

So stay tuned and till then

Happy Trading!