NIFTY WALKING ON THIN ICE AND ICE MELTS.....

BIGGER MOVES AND BIGGER VOLUMES ALWAYS HAPPEN AT INFLECTION POINTS.....
O Ashuji....

Nifty Walking on Thin Ice and Ice Melts.....

http://www.speculationanart.blogspot.in/2013/01/nifty-labored-move-and-walking-on-thin.html (BLOG DATED 29TH Jan, 2013)

Though Nifty has been having labored move as discussed in previous 2 blogs and breadth has been very worrying during those moves, 2 things happened on 4th Feb, 2013, which makes Ice Melting under Nifty's Labored move.

1) Sharp Shrinkage in Nifty Premium
2) Put IV's jumps 4 points higher than Call IVs


Nifty Premium/Discount Since 2012

1) Premium typically builds after move has started and expands towards the end of the move.

2) Nifty enjoyed 16% return during Jan-Feb 2012 (such sharp move came after end of world sentiment during Aug-Dec 2011). Premiums were subdued during the rise, while they expanded after the move was largely over. At the start of March 2012 expiry, premiums expanded from 25odd points in February to 50odd points. With subdued March (down 1%) premiums stabilized @ 25-30pts during April 2012 expiry.

3) Nifty Premium went to discount in 2nd half of May 2012 expiry because of sharp fall in H1 May 2012 (down 5.4% by 11th May 2012)

4) Nifty along with world markets bottomed on 4th June 2012. As discussed earlier, premium typically builds once the move has started. Nifty turned to returned to premium by July 2012.

5) Since, July 2012 premiums has been steady to gradually expanding reaching peak in Jan 2013 of 45-50 points in early part of Jan 2012 expiry.

6) Feb 2013 series started with premium of 37 points. However, premium shrunk to 9 points on 4th Feb 2013 (2nd day of expiry). This is fall of 28 points in Nifty premium (sharpest single day fall in premium). Also, first time since July 2012, Nifty premium has gone to single digit in first week of expiry. 

ABOVE ANALYSIS CONSIDERS ONLY H1 OF EXPIRY SINCE PREMIUM GRADUALLY SHRINKS AND APPROACHES SPOT NIFTY TOWARDS  DURING H2 OF EXPIRY. 

OPTION IMPLIED VOLATILITY (IVs) (FEB 2013 EXPIRY)

1) Call and Put IVs were similar through Dec-Jan and were similar till few days back. However, gap has increased significantly to 4 points now in past few days.














Conclusion

The above indicates that positioning is now building on the short side and we could have lower move now sooner (as most other indicators have been pointing but price was not reflecting).