How we could have also benefitted from Yesterday's spectacular move of 1200 points on the Bank Nifty

TL;DR: Many traders are feeling disappointed that they could not benefit from Yesterday's spectacular move of 1200 points on the Bank Nifty. Expert Ghanshyam has explained a technique which can help us to predict such moves & benefit from them. He personally made Rs 83 Lakh from this technique

FII buying caused short-covering which led to yesterday's super-surge of 1200 points on the Bank Nifty despite subdued global cues

Yesterday was actually supposed to be a subdued day owing to the negative global cues and the lack of triggers.

However, at about 10.30 IST, a couple of FIIs came on the scene and placed orders for purchase of stocks worth Rs. 4166 crore. Most of the purchases must have been in the Index heavyweight stocks such as Reliance, HDFC Bank etc.



This encouraged other buyers and also sparked panic amongst shorters who had sold call options at various strike prices such as 38500, 39000 and 39500. As it was the eve of expiry (Wednesday is a holiday owing to Ganesh Chaturti), there was a mad scramble to cover the shorts which led to the Call prices surging.

By the EOD, the Bank Nifty had surged 1200 points, leaving the Bears in tatters and the Bulls delighted.



When option sellers panic, prices shoot up exponentially

In hindsight, yesterday was a classic example of panic action by sellers of Calls. As noted earlier, there was a heavy accumulation of open interest at 38500 and higher. As it was the eve of expiry, the sellers of these options were sanguine that the Index would stay range-bound and they could pocket the entire premium received for selling the calls.

However, the Bank Nifty opened gap-up and breached the 38500 mark. At 1030 IST, it broke the 38800 level. It was quite evident that the sellers had no option but to cover their shorts at whatever prices are available.



In an earlier video (link), Ghanshyam explained that big Option sellers such as FIIs, DIIs and HNIs congregate around round strikes in the Indices such as 38500, 39000, 39500, 40000 etc as these have the most liquidity. When the Index approaches the round numbers, the sellers of these strikes want to exit by buying back the options.

Others players are aware of this and watching. They begin to buy. The dual action of the sellers exiting and new buyers entering means that the prices have nowhere to go but up. This attracts more buyers and also puts immense pressure on the shorters.

So, the entire exercise becomes a self-fulfilling prophecy.

Ghanshyam explained that it is a simple matter of our watching the screen and focusing on the round strikes. We should also keep an eye on the Open Interest in the Option Chain. When the Open Interest in the Calls starts decreasing, it is a sure sign that the Bears are covering their shorts.

Individual traders made as much as Rs 9.5 crores yesterday

Many savvy traders did benefit from the price action. A trader named Paresh Patel took home a massive fortune of Rs 9.5 crore. Others also pocketed several lakhs in gain (see link).

Ghanshyam reported an earning of Rs. 83 lakh by diligently following his own technique.

"मै Option Writer के डर को Play करता हु !! 9.20 Bank Nifty Option Strategy मेरा ब्रम्हास्त है," he rightly said.