Consolidated Synopsis

Mentoring Session 7
Mentoring Session 4, Day 1: 24 May 2021
Trading Ideas
We hope that the Day 1 of the Mentoring session was useful for you to get an insight about the
dynamics of Markets. As you must be clear that our main objective is to shorten your learning
curve in understanding the markets. If you can grasp the mood,sentiment ,pulse etc of the
market you can trade in any manner. You may buy options, sell options , scalp, take a positional
or a swing trade the options are endless. But the key thing is catching this underlying sentiment.

As we will dive deeper into concepts we shall be using some more tools to understand the
market that would enhance your skills.
In order to further facilitate your understanding we shall be sharing trading ideas that could have
been carried out during the day. These will be based upon the actual trades that were taken in
Live Market.

Opening Trade Ideas

For opening you must have a plan that is based on previous day data,World Markets and the
opening levels based upon Pre Open market data.
So let us see how how plan for today’s opening trade should have been

Previous Day Data:

For this we need to look into the previous day chart.
The above chart is of Previous Day i.e Friday 21 May 2021.
The most striking features that you must note down from this data are
● Observe the Price Candles of the last one hour and corresponding Volume Candles.
● Observe that the entire day Price was above the VWAP.
● The precise broke its PDH (Previous Day High i.e 20 May) and never went below it.
● The Price closed at its Day High.

So these figures establish the fact that the Bulls were in absolute control throughout the day and
they were most active towards the Day’s End.

Now we must have also analyse charts on a higher time frame

For this we will analyse daily time frame chart and identify major support and resistance levels

On this daily chart time frame just see what is the latest development of the previous day and
where the price is at time of closing.

● Just observe that on previous day the Price broke an important Resistance level of
34280 level and closed well above it at day’s high.
● This is a major development as from now on the 34280 level that was till now a
Resistance level would now act as a Support.
● The next major resistance is around 36500, so we may price to reach that level again.
● However, kindly note that the price region from 35000 to 36500 is a high congestion
region where prices spent a considerable time in the recent past.
SO what can you make out based on analysing Previous day Data and Data on Higher Time
Frame?
It is certainly a Bullish signal, Bulls have broken an important price level and closed well
above it near Day’s High, so they would try to take the market higher and give in their
best efforts to defend this level.

So Can you think of an opening trade on the basis of this data?

Yes we may plan for a Bullish setup right at opening but we need more confirmations.
So we shall look at 2 more data sets to finally plan a trade. We will analyse

1. World Markets
2. Pre Market Data till 9.08

If these are in favour then we can think of planning a trade and execute it at opening itself

World Markets

For World Market we shall analyse the Dow Jones Data of Previous session and Dow Futures of
present day till 9.15 AM as per IST.

Previous day Dow Jones Session (Index/Spot)

Just observe where the market opened and where it closed and how it behaved during its
session.
We see that it had a Bullish Opening , though it tapered a bit toward the end but still had a
bullish closing.

Now let us see what DOW Futures traded in the Morning before opening of our Markets
Just observe that the Dow Future opened around 34237 levels and by 9.00 AM it was around
34346, a rise of 100 points. That's bullish.

So overall it is a Bullish scenario based on World Markets too.

So now we have a Bullish view based upon our domestic market data as well as World market
data, so can we plan a Bullish setup right at opening?
Well yes we can but subject to the opening of the market.
We may have three kind of openings

● Gap Up
● Flat
● Gap Down

Now our trading plan would depend on the type of opening subject to overall Bullish scenario
Gap UP Opening
It might be possible that we may get a Gap Up Opening, in that case chasing it or taking a
Morning trade right at open will not make a sense, rather it would be sensible to wait for a good
retracement to happen to enter a trade as some overnight position holders would book their
profits and bulls would defend the up move that may be a scalping opportunity.

Flat Opening
If it is a flat opening we will have a great day to start with. Reason Bulls will try to take the
market higher right at opening and defend any down moves too.
So we can enter right at opening and scalp towards a higher level and buy on any dips.

Gap Down Opening.

This would provide an opportunity to enter right at the opening as Bulls would try to defend their
effort. However the possibility of Gap down is low given World Market levels.

So now the plan has been prepared.

The next important thing is execution that is the key. It will take you a while to develop the skill of
fast entry and exit, but once you develop it, that would be your greatest asset.

So what happened at Opening?

So today we had almost a flat opening and it was a perfect opportunity to scalp.
You should have averaged your position with every fall and just wait for one move up. It
happened beautifully in the first 2 candles itself.
Our master scalper SivaKumar Jayachandran was able to mint around 2 lakhs in the first 6
minutes itself.
These two Candles were enough for you to earn your daily target of 1% of your capital.

So I guess that the concept behind Opening trades is clear to all of you.
At the very outset we would like to tell you that Opening Trades are the most RISKY ones as
Market is very volatile at time of opening, so enter a trade when all the data point in one
direction and manage your risk accordingly.
We will talk more about Risk management in upcoming sessions.
Subsequent Trades

Now how to plan trades for the rest of the day.

Though usually we look at Open Interest Data around 10 AM and plan our trades accordingly.
Since the Open INterest concept has not been discussed in detail we will give it a skip today. In
Fact the overall Bullishness is enough to plan subsequent trades.

So now based on Previous Day data, World Markets & Market Opening what do you think
was the sentiment of the market?
But the important point is upto what levels would you remain Bullish?
It is an important aspect that you need to learn. You need to identify levels upto which
Bullishness is intact and from where the market can enter into Bearish territory.

For this I would again jump into the charts and identify key levels from where the major Bullish
activity started. This key level would be my turning point.

So we see that Yesterday the Bulls started buying from 34247 levels. This would be my key
turning point. Till this level I shall be Bullish and look for buying opportunities.

Since it is quite deep you need to have a WIDER STOPLOSS for the day.
So what do we do in Bullish scenarios? We can buy calls or write puts. But for buying calls we
need to wait for the right opportunity.
So what is the right opportunity?
Every Dip is a buying opportunity for scalping.

Till what levels I can plan this buy on Dip strategy?

Till the end of Bullish Zone.

Where is an ideal buying opportunity?

If price falls to any important levels shown by any technical indicator- VWAP, Supertrand,
VWMA, CPR, Moving Average it would be ideal to trade.

So you see there were plenty of buying opportunities when price dipped to important technical
levels.

The key thing to remember is fast execution and wider Stop Losses.

Trading Opportunity in Second Half

You can observe that in the second half of the market from 12.00 PM till 2.00 PM markets were
at a standstill. It kept on roaming in a narrow range of 200 points which is very uncommon for a
volatile index like Bank Nifty.
This happens when Options sellers are controlling the markets and eating the premiums.
These sellers would control the market, eat the premiums and then allow the market to move in
a direction. Usually the moves after such a narrow zone are quite violent and that happened
around 2.30.
There was a perfect setup around this time.

You can observe that around 2.30 after a long Congestion Price broke the range with a strong
Bullish Candle with Volumes greater than 120 K, also there was a subsequent candle with
Volume 120 K.
This concept of 2 subsequent Bullish/Bearish candles with volumes greater than 50K is a
very high probability trade and you need to enter right away and buy on every dip.
In such cases you can buy till price moves down to ST and wait for the next up move and
trail your profits.

This gave a move of around 300 points.

What else do you need from the Markets!

I guess that today's trading ideas would be an eye opener for you. We would discuss more
ideas in detail along with other concepts to facilitate your learning.
So as an exercise try to make a plan for tomorrow's opening using the same context we
discussed today.
You need to make this a daily practise to prepare a plan for tomorrow’s day.

Till then
Happy Trading

Regards

Team OI Pulse
 Synopsis
Mentoring Session 7, Day 2: 12 Jan 2022
We hope that the second day of the Mentoring session provided an eye opening experience to
you as you witnessed in Live Market how the Global Markets impact our domestic markets.
In this document we shall summarize our major learnings and also look at trading opportunities
that arose during the day.

As you know that to successfully plan and execute a trade we need to connect the Dots that
govern the market. Today we discussed World Markets and basics of Derivatives.

So today’s document shall focus upon

A. World Markets
B. Basics of Futures and Options

A. World Markets
I’m sure that you must be versed with the term “Connecting the Dots” by now. Trading in the
markets is all about looking at various market influencing factors that we refer as “Dots” and
analyzing them collectively.
So there are about 10 Dots that we suggest a Professional Trader must look at before taking a
trade. (Don't get disheartened by reading the number 10, your mind is capable of analyzing
much more than that, it just needs to be trained). The first Connecting Dot is of World Markets.
We will learn important aspects about World Markets by trying to answer these questions

1. Why are World Markets important for Indian Markets?

2. Which World Markets have significant influence on our Market?
3. Which is the most important global economy for Indian Markets?
4. Which Global Indices do we need to track?
5. How can we track the World markets?
6. Is there any specific time period when Global Markets become less significant for Indian
Markets?
7. Relevance of SGX Nifty.
8. Can Banknifty and Dow Jones be related to each other?
So let's begin!

1. Why are World Markets important for Indian Markets?

In this era of Globalization everything is connected. Trade, business and commerce has
actually eroded political borders between nations and continents. Our markets get a
substantial amount of capital from overseas investors and institutions. Also overseas
markets get a significant amount of capital from Indian HNI’s and institutions. In such a
scenario if anything happens in one part of the World will have ramifications across the
globe.
Lehman brother crisis, Dotcom bubble burst are historical examples to prove our point.

2. Which World Markets have significant influence on our Market?

Though there are more than 200 countries across the globe, we don't need to give
importance to all of them. We need to look at two sets of economies
● Developed Economies: US, UK, Germany, France, Japan
● Emerging Economies: Asian Economies like Hongkong, Indonesia,Singapore
Tracking these economies is more than sufficient to analyze World Markets.

3. Which is the most important global economy for Indian Markets?

Of all the global economies the US economy is most important for our markets. The
primary reason for this is the “Dollar” that is the international currency. Since the majority
of the global trade and financial investments happen in dollar terms, the US becomes
the most important economy. It is for this reason that the US Market usually represented
by US 30 or Dow Jones is considered to be the mother of all economies.

4. Which Global Indices do we need to track?

We need to track following Indices on live basis
1. Dow Jones: Index of Top 30 US companies. Since it is traded in the US the
timings of Dow Jones do not match with our Markets. It is traded from 19.30 Hrs
to 01.30 Hrs as per IST.
2. US 30 Futures: This is a tradable instrument and is traded from 5.30 Hrs till
01.30 hrs as per IST.
 It is important to analyze both the Dow Jones (Spot) and US 30 (Future) together
to form a view.

Just go throught the following hypothetical example of how changes in US

indices can be interpreted for Indian Markets before our Markets open.

S.no Change in Dow Change in US 30 Interpretation

Jones (Spot) (Futures) till 09.00

1 +100 +50 Bullish

2 +100 -75 Neutral

3 -100 +75 Neutral

4 -100 -50 Bearish

Though this is an oversimplification of facts, you must understand the concept and apply
it yourself in the real world market.

3. HANGSENG: HongKong. This index is second most important for Indian markets
in the opening hours. The reason is that Hongkong, like us, is an Emerging
economy and Global Investors for most of the time pump/extract money into
Emerging markets as a group. So whatever happens in the morning in Hansang
before our market opens can be a good indicator for our market.
4. NIKKEI: It is the benchmark index of the Japanese economy and is the earliest to
open as per IST. It trades from 5.30 AM in the morning.
5. DAX : Germany
6. FTSE 100 : United Kingdom
7. CAC 40 : France
5. How can we track the World markets?
These Global markets may be tracked on a Live basis on various websites like
Investing.com or Bloomberg.
OI Pulse’s Dashboard allows you to keep a track of US 30 Futures on a live basis.

6. Is there any specific time period when Global Markets become less significant for
Indian Markets?
This is a very important aspect to understand. Though for most of the times we will move
along with the Global markets but there would be times when we shall be highly
insensitive to World markets. These will be the times of important Domestic Events like
Budget, Elections, RBI Monetary Policy or any other important event of domestic
relevance.

7. Relevance of SGX Nifty.

SGX Nifty is the Indian Index traded on Singapore exchange. Since the trading hours of
Singapore exchange precede that of Indian Markets it may be a good sign to know how
Indian Markets are likely to open. However we should be very cautious because the
Volume traded on SGX Nifty is very thin. This is very important and at times may be
even used by some players to mislead Domestic retailers. It would be much wiser to
track US 30 and Dow Jones as their Volumes are much much higher and can not be
easily manipulated.

8. Can Banknifty and Dow Jones be related to each other?

This is a very important observation made by our experienced traders. If you see the
levels around which Dow Jones and Banknifty are trading you would be amazed to see
the correlation. They usually trade around the same levels.
This can be converted to trading opportunities at times. E.g if Banknifty is trading at
33500 and US 30 is at 34000 and we are bullish then there is a very high chance that
Banknifty can reach 34000.
The reason behind this is the game plan of Big Boys of the Markets. They tend to
converge at times. This has been observed many times in the past.
 As an exercise you can track historical correlation between Nifty50 and DAX and look for
convergence.

To prove the impact of Dow Jones on our Markets let us discuss the Trading Opportunities of
the day in which Dow had a major impact.

Morning Trade

To plan our Morning Trade we must look at the following factors.

1. Price & Volume Action
2. Open Interest of Previous day
3. Dow Jones Spot Performance of previous session
4. US 30 Futures performance before the Market opens
5. Asian Market Performance before our Market Opening
6. Pre Open Market levels of Bank Nifty.

As this is the first day we shall be discounting the impact of Open Interest as it is yet to
be discussed. But we shall discuss other factors

.
 1. Price & Volume Action of Previous day

So on a daily chart we can say that the market is looking really Bullish.
Since the Bull run has been for consecutive 9 days there is some tendency of a pull back for
Profit booking at higher levels. However, opening a bullish up move is very much possible and
that's all we are discussing and interested about.
 ● So intraday also the price action was bullish
● We had more Bullish Volume candles especially towards the end of day.
● The Closing was above VWAP and near days High so this is also a Bullish sign.

So there is nothing Bearish about previous day price action.

So in such a scenario we expect that there would be many players who would have carried
home their position and tomorrow morning they would like the market to rise further to gain
profit.
So an up move is very likely tomorrow morning if we don't get a very big Gap Up.
The Price action needs to be validated by Open Interest, but since we have not discussed it yet
we shall discount it for today's discussion.

So today Price Action and Open Interest need to be further validated by Global market support.
Our Price Action and Open Interest point towards a Bullish scenario for the next day opening.
To further strengthen our view we must look at World Markets before our markets open.

We need to look at the Dow Jones Spot and Future Both.

So we can see Dow Jones Spot was Bullish Yesterday as

 ● It closed in Green
● Had a Bullish Price Action
● Closing at Days High

Now we also need to take into consideration US 30 Futures to see the net impact of US
Markets.

So
DOW JONES SPOT : Bullish
US 30 Futures : Bullish
—----------------------------------------------
NET Result of US Markets: BULLISH
Now let us also take a clue from Hang Seng Markets

So now summing Up

1. Price & Volume Action :BULLISH

2. Open Interest of Previous day : BULLISH (NOT DISCUSSED)
3. Dow Jones Spot Performance of previous session : BULLISH
4. US 30 Futures performance before the Market opens : BULLISH
5. Asian Market Performance before our Market Opening : BULLISH
So overall we are pretty Bullish and now we must plan our Morning Trade based on this
background and our Pre level Opening Market.

Pre Open Market levels of Bank Nifty.

Today we had a pretty good Gap Up in backdrop of Bullish sentiment.

Now in today's scenario we can look to buy a Call on every Dip and that should have been our
plan.
We should have selected ITM/Deep ITM strike and bought it on opening and trailed once the
price escalated.

To make things simpler we have specially programmed AI drives algorithms that give you
Morning trade clues on OI Pulse under Morning Trade Strategy.
Let's take example of 38400 CE

So had you purchased 38400 CE till 435, you could have easily trailed till 470 levels in Opening
minutes only.

So this is how our Opening Trades played out and we guess the impact of Global MArkets is
also clear to you.

In order to understand the impact of DOW on intraday trading opportunities let us look at the
second trading opportunity of the day.
Trading Opportunity 2 and DOW JONES

At 13.54 today we had a breakout on the down side. This was mainly due to Profit booking.
Usually we wait for a second consecutive candle to enter in Put trade but we entered the trade
mainly because of the DOW factor.
Since DOW fell at the same time from its higher level we entered a Put trade and we could
easily scalp successfully.
Though this was a risky trade but with Dow on our side we took the trade and results were
positive.

So with these two examples I guess that the impact of DOW on our market is pretty clear.
We shall now be using DOW as an integral part of our strategy in upcoming days.
 OPEN INTEREST

Now the second important topic of discussion is Open Interest which we consider as our God
because it is used to validate everything happening around us.
So we shall focus on understanding OI through following questions

What is Open Interest (OI)

What is the importance of OI
Who determines OI levels buyers or sellers?
How do we correlate change in OI with change in price?
What is OI Spurts and its relevance

So let’s begin

1. What is Open Interest (OI)?

Before we start discussing OI please answer a very basic question
“In Derivative trading what instrument is actually traded?”
We know that in equity trading we trade stocks, in debt trading we trade bonds , in forex
trading we trade currencies but in Derivative trading we trade Contracts.
In equity trading the underlying stocks are issued by the parent company but in
Derivative trading the underlying “Contracts” are generated as per the will of buyer and
seller. These contracts are traded between two parties, buyer and seller.There can be
any number of such contracts (subject to NSE rules) unlike stocks.
So is there a way to know how many such contracts are there at the moment and
at what levels?
The answer is OPEN INTEREST. The numerical value of Open Interest denotes the
total number of outstanding contracts in the market at any given moment. We will
see how the price and number of derivative contracts are related to each other shortly.

Now kindly take note of the highlighted words to grasp the concept to the core

1. “total number of outstanding contracts”

2. “given moment”

If you are able to understand these two words you can proceed ahead.
So let us focus on “total number of outstanding contracts” first

Now to begin with there are two kinds of primary Derivatives- Futures and Options.OI
applies to both of them but OI analysis of Options yields relatively more information
about market sentiment. Initially we will try to understand concepts through Futures and
then apply it to Options.

We will oversimplify the real life scenario to understand the concept. Let us consider
BankNifty Futures.

Consider there are only two players in the Market, player A and player B.
Let us say at 9.15 AM at time of opening
Player A feels that Banknifty will go down whereas Player B feels it will go up. So they
enter a contract where Player A sells a contract and Player B buys that contract.

So at 9.15 AM there is only 1 contract present in the Market.

So “total number of outstanding contracts” at 9.15 is 1.

Now consider the situation at 9.20. The beliefs of both players become stronger. So
Player A sells 4 new contracts to player B. The situation would look like this
So at 9.20 AM there are 5 contracts present in the Market. 1 was originally transacted at
9.15 and 4 new contracts were transacted at 9.20

So “total number of outstanding contracts” at 9.20 are 5.

So from 9.15 to 9.20 there was an increase of 4 contracts

Now let us see what happened at 9.30 AM.

Suppose there is some bullishness in the environment, maybe some positive news has
suddenly popped up. Player A who had sold 5 contracts would start to worry. He would
like to cut down his losses and in order to do so he would have to reduce his outstanding
position. So he will approach the Buyer “B” and ask him to return one contract. Suppose
it happens this is how the situation will look like.
So at 9.25 Seller Buybacks one contract and tears it apart. So how many contracts do you see
remaining in the system?

So “total number of outstanding contracts” at 9.25 are 5-1=4.

So from 9.20 to 9.25 there was a decrease of 1 contract.

Now suppose the market moved up by 9.30. Player “B” would be in profit. Now he wants to book
some of his profit, for doing so he needs to sell his contracts. He can sell it to the original seller
or a new buyer as per his wish and price offered. Now suppose at 9.30 another player “C”
enters the market who is bullish about Bank Nifty and feels that it will go further up. He needs to
buy a contract in order to enter the market. At this moment it is likely that Seller “A” won't write
new contracts, so he will approach Player “B” the original buyer who wants to sell the contracts
to book some of the profit. A transaction will be done in this case.
It would look something like this
So what happened? One contract (Contract no 4, originally written @9.20) gets transferred to
new Player “C”

So “total number of outstanding contracts” at 9.30 are 4

So from 9.20 to 9.25 there was no change in the total number of outstanding contracts.
So the existing contracts exchanged hands but there was no change in the total number of
contracts.

Now what is Open Interest?

It is nothing but “total number of outstanding contracts” at any given time
(9.15/9.20/9.25/9.30).

So I guess you have an idea of what Open Interest is.

Since this was an oversimplified version of the real world, there are Multiple Players who buy
and sell simultaneously.

Just have a look at how OI changes from time to time in actual

2. What is the importance of OI ?

OI is the most reliable data that can be used to gauge the Market Sentiment and this is
the reason why it is so important. This data reveals what the majority of market
participants are doing at the moment. If we can align our trade with the dominant
sentiment of the market, it enhances the probability of successful trades. So if you want
to take successful trades confidently then having knowledge of OI is a must.
3. Who determines OI levels buyers or sellers?

It is a very serious aspect that one needs to ponder upon, who determines the Open
Interest buyer or the seller. Well the correct answer to this question is that both Buyers
and sellers together determine the total OI, since it is a contract involving both buyer
as well as seller. So though both determine the total outstanding OI but who out of the
two dominate the pricing of options? The answer to this question is that sellers
dominate the pricing aspect of options for the majority of time and this is the reason
that they dominate most of the time but certainly not every time.
It is an outcome of demand and supply. In derivative options sellers are suppliers
whereas option buyers create demand. There will be times when demand is high and
sometimes supply is higher. When the supply is higher the option prices tend to drop and
when demand is higher the prices tend to rise.

4. How do we correlate change in OI with change in price?

This aspect forms the core of the entire Open Interest analysis. The real useful
information that can be used for actual trading is how do we analyse change in OI with
respect to change in price of the contract.
In fact the change in price is actually an outcome of change in OI. It is an outcome of
demand and supply. In derivative trading options sellers are suppliers whereas option
buyers create demand. There will be times when demand is high and sometimes supply
is higher. When the supply is higher the option prices tend to drop and when demand is
higher the prices tend to rise.
Just consider the above graph. Suppose we are at an equilibrium at point 1. Now
suddenly the supply increases to point “2”, what do you think would happen to the price?
It would come down as the equilibrium is restored.
Similarly if the demand rises to “3” then the prices will increase to establish new
equilibrium.

Now in order to proceed further it is important that we understand following terms at a

functional level
Long Buildup
Short Buildup
Short Unwinding/Covering
Long Unwinding
These topics shall be dealt with in great detail in the upcoming session but we
encourage you to think about these topics based upon the chart given above.

We hope that we have added some value to you on this second day.
In upcoming days we shall focus upon other connecting dots and see how they can help
you become a good profitable and consistent trader.

Regards

Team OI Pulse
 Synopsis
Mentoring Session 7, Day 4: 18 Jan 2022
We hope that all of you must now be able to correlate the learnings with practical applications.
We have extensively discussed the impact of DOW on our markets and today that concept
became much more clearer.

In the previous session we started with discussion on Open Interest and carrying on the same
discussion we learnt another important concept “OI Spurts”. So we shall discuss on following
topics today

1. Open Interest -Basics

2. OI Spurts- 4 quadrants
3. Today’s Trade-Correlating data with market movement/Impact of Dow on our Markets

OPEN INTEREST-BASICS

Now the second important topic of discussion is Open Interest which we consider as our God
because it is used to validate everything happening around us.
So we shall focus on understanding OI through following questions

What is Open Interest (OI)

What is the importance of OI
Who determines OI levels buyers or sellers?
How do we correlate change in OI with change in price?

So let’s begin

1. What is Open Interest (OI)?

Before we start discussing OI please answer a very basic question
“In Derivative trading what instrument is actually traded?”
We know that in equity trading we trade stocks, in debt trading we trade bonds , in forex
trading we trade currencies but in Derivative trading we trade Contracts.
In equity trading the underlying stocks are issued by the parent company but in
Derivative trading the underlying “Contracts” are generated as per the will of buyer and
 seller. These contracts are traded between two parties, buyer and seller.There can be
any number of such contracts (subject to NSE rules) unlike stocks.
So is there a way to know how many such contracts are there at the moment and
at what levels?
The answer is OPEN INTEREST. The numerical value of Open Interest denotes the
total number of outstanding contracts in the market at any given moment. We will
see how the price and number of derivative contracts are related to each other shortly.

Now kindly take note of the highlighted words to grasp the concept to the core

1. “total number of outstanding contracts”

2. “given moment”

If you are able to understand these two words you can proceed ahead.

So let us focus on “total number of outstanding contracts” first

Now to begin with there are two kinds of primary Derivatives- Futures and Options.OI
applies to both of them but OI analysis of Options yields relatively more information
about market sentiment. Initially we will try to understand concepts through Futures and
then apply it to Options.

We will oversimplify the real life scenario to understand the concept. Let us consider
BankNifty Futures.

Consider there are only two players in the Market, player A and player B.
Let us say at 9.15 AM at time of opening
Player A feels that Banknifty will go down whereas Player B feels it will go up. So they
enter a contract where Player A sells a contract and Player B buys that contract.
So at 9.15 AM there is only 1 contract present in the Market.
So “total number of outstanding contracts” at 9.15 is 1.

Now consider the situation at 9.20. The beliefs of both players become stronger. So
Player A sells 4 new contracts to player B. The situation would look like this

So at 9.20 AM there are 5 contracts present in the Market. 1 was originally transacted at
9.15 and 4 new contracts were transacted at 9.20

So “total number of outstanding contracts” at 9.20 are 5.

So from 9.15 to 9.20 there was an increase of 4 contracts

Now let us see what happened at 9.30 AM.

Suppose there is some bullishness in the environment, maybe some positive news has
suddenly popped up. Player A who had sold 5 contracts would start to worry. He would
like to cut down his losses and in order to do so he would have to reduce his outstanding
position. So he will approach the Buyer “B” and ask him to return one contract. Suppose
it happens this is how the situation will look like.
So at 9.25 Seller Buybacks one contract and tears it apart. So how many contracts do you see
remaining in the system?

So “total number of outstanding contracts” at 9.25 are 5-1=4.

So from 9.20 to 9.25 there was a decrease of 1 contract.

Now suppose the market moved up by 9.30. Player “B” would be in profit. Now he wants to book
some of his profit, for doing so he needs to sell his contracts. He can sell it to the original seller
or a new buyer as per his wish and price offered. Now suppose at 9.30 another player “C”
enters the market who is bullish about Bank Nifty and feels that it will go further up. He needs to
buy a contract in order to enter the market. At this moment it is likely that Seller “A” won't write
new contracts, so he will approach Player “B” the original buyer who wants to sell the contracts
to book some of the profit. A transaction will be done in this case.
It would look something like this
So what happened? One contract (Contract no 4, originally written @9.20) gets transferred to
new Player “C”

So “total number of outstanding contracts” at 9.30 are 4

So from 9.20 to 9.25 there was no change in the total number of outstanding contracts.
So the existing contracts exchanged hands but there was no change in the total number of
contracts.

Now what is Open Interest?

It is nothing but “total number of outstanding contracts” at any given time
(9.15/9.20/9.25/9.30).

So I guess you have an idea of what Open Interest is.

Since this was an oversimplified version of the real world, there are Multiple Players who buy
and sell simultaneously.

Just have a look at how OI changes from time to time in actual

2. What is the importance of OI ?

OI is the most reliable data that can be used to gauge the Market Sentiment and this is
the reason why it is so important. This data reveals what the majority of market
participants are doing at the moment. If we can align our trade with the dominant
sentiment of the market, it enhances the probability of successful trades. So if you want
to take successful trades confidently then having knowledge of OI is a must.
3. Who determines OI levels buyers or sellers?

It is a very serious aspect that one needs to ponder upon, who determines the Open
Interest buyer or the seller. Well the correct answer to this question is that both Buyers
and sellers together determine the total OI, since it is a contract involving both buyer
as well as seller. So though both determine the total outstanding OI but who out of the
two dominate the pricing of options? The answer to this question is that sellers
dominate the pricing aspect of options for the majority of time and this is the reason
that they dominate most of the time but certainly not every time.
It is an outcome of demand and supply. In derivative options sellers are suppliers
whereas option buyers create demand. There will be times when demand is high and
sometimes supply is higher. When the supply is higher the option prices tend to drop and
when demand is higher the prices tend to rise.

4. How do we correlate change in OI with change in price?

This aspect forms the core of the entire Open Interest analysis. The real useful
information that can be used for actual trading is how do we analyze change in OI with
respect to change in price of the contract.
In fact the change in price is actually an outcome of change in OI. It is an outcome of
demand and supply. In derivative trading options sellers are suppliers whereas option
buyers create demand. There will be times when demand is high and sometimes supply
is higher. When the supply is higher the option prices tend to drop and when demand is
higher the prices tend to rise.
Just consider the above graph. Suppose we are at an equilibrium at point 1. Now
suddenly the supply increases to point “2”, what do you think would happen to the price?
It would come down as the equilibrium is restored.
Similarly if the demand rises to “3” then the prices will increase to establish new
equilibrium.

Now in order to proceed further it is important that we understand following terms at a

functional level
Long Buildup
Short Buildup
Short Unwinding/Covering
Long Unwinding
 These four terms we shall understand through Options OI rather than Futures OI for
more clarity. The basic concept is the same for Options and Futures OI.

These four terms constitute the heart of this training session and shall be using them
extensively. Thus it is very important that you understand what these terms actually
mean. The following discussion would be a bit technical but very logical. Read this
section twice if you are not able to grasp the concept in one go.

These four terms actually refer to 4 different combinations of “Rise/Fall in Price” and
“Rise/Fall in OI”.
These four combinations can be
1. Rise in Price & Rise in OI
2. Rise in Price & Fall in OI
3. Fall in Price & Rise in OI
4. Fall in Price & Fall in OI
In order to understand them we will go back to our demand and supply graph
Shown above is a simple demand and supply graph, I have used it in the context of Option
contracts. Assume it to be a graph of CALL Option. Along X axis is Quantity of Contracts Open
i.e Open Interest and along Y axis is the Price.

Assume we are at point no 1 where the price is P1 and OI is O1. Now what will happen if there
is a sudden jump in supply of contracts. On the graph we will move from point no 1 to point no
2. Demand Supply equilibrium has been disturbed. Supply has gone to 2. Now in order to
restore the equilibrium demand will follow and the following will happen.

So New Demand curve is generated to accommodate new supply. If we analyse from the graph
what have been the outcomes?
 i. Price has reduced
ii. Quantity (OI) has increased.

This is known as Short Built Up.

So what happened here , there was an oversupply of Call Option contracts and then buyers got
inclined to them but at a decreasing price.
When will this happen in a Call Option?. Only when the scenario is bearish i.e the Index is
moving or likely to go downwards.
What can we say if we are to analyze this in the context of Put options. Put Option writers
would flood the market with new contracts when they are confident that index/underlying is
going to move upwards i.e scenario is Bullish. (A contrast but true).
So we would summarize short build-up in the following manner..

i. It is surely driven by Sellers or option writers. Buyers respond to them.

ii. It surely leads to lowering of prices of contracts.
iii. It means that Option Seller is confident that the price won’t cross this strike price. It is a
mixed signal and may have three interpretations
a. Index may decrease further. (Very High Short built up)
b. The underlying index may remain standstill. (Moderate Short built up)
c. Index may increase but not cross the strike price at which Short built up happens.(Low
Short Built up).

So as an option buyer I know that signals are mixed and should look for opportunities in
the opposite direction and not in their direction. This means if there is a high short built
up in Call option then being an option buyer I should concentrate on Put option.
Strikes with decreasing option prices but rising OI is a honey trap for buyers set by
sellers..STAY AWAY.

In a similar manner I will discuss the other three scenarios. I would use the following figure to
discuss them.
 Figure 3: Terminologies

LONG BUILT UP

Refer to figure 3.
Suppose initially the maker is at point no 1 and suddenly there is a jump in demand of contracts
(CALL contracts). The rise in jump happens from point no 1 to point. No 3 along the demand
curve. As a result supply would readjust but at an increasing price which is justified as new
buyers would be ready to pay more price than existing one and sellers would demand higher
price as they are going into a zone of discomfort.

So following are the outcomes

 i. Price of option contract increases
ii. Quantity (Open Interest) has increased.

This is LONG BUILT UP.

So what has happened here. The buyers have stormed in and broken the equilibrium. They are
enticing sellers to write more contracts by offering them more price. When do you think this
would happen? Only when the index moves in direction of Option buyer i.e In upward direction
for Call buyer and downward direction for a Put Buyer. Thus it may be both bearish or bullish
depending upon which side you want to be.

So it would summarise my understanding of long built-up in the following manner..

i. It is surely driven by Buyers or option buyers. Sellers respond to them.

ii. It surely leads to an increase in prices of contracts.

Now what can be the expectations in a Long built up?

I would start by saying that Long built up would happen at OTM strike price. It gives a strong
signal that price would move in this particular direction i.e towards OTM strike at which Long
Built up happens. We also have to respect the fact that so many sellers at the strike price with
long build up would provide a strong resistance for the price to cross that level.
As an intraday option buyer I’m only concerned with the rise in option premiums and that can
happen only if index moves in a particular direction and long built up provides that direction. So
in short Option Buyer is confident that

a. Index will not move against the direction.

b. It would easily move in the direction

So as an option buyer I should look for opportunities in the direction suggested by Long built up
and not in the opposite direction. This means if there is a high long built up in Call option then
being an option buyer I should concentrate on Call option.
So we see that short built at a strike indicates strongly that price won’t breach that level and
long built at OTM strike gives strong signal the price would move towards that particular strike
but may or may not breach it due to strong resistance offered by Option sellers. What if both
happen simultaneously. It is a strong signal for Option buyers. Consider following hypothetical
scenarios

Scene 1: Nifty Option Chain

ATM strike 9600
Strong Long Built Up @ OTM 9800 CE Option (Rise in OI+Price)
Strong Short Built Up @ OTM 9500 PE Option (Rise in OI and fall in price)
This indicates that chances are very high for the nifty to move towards 9800 from 9600. Totally
bullish market.

Scene 2: Nifty Option Chain

ATM strike 9600
Strong Long Built Up @ OTM 9400 PE Option (Rise in OI+Price)
Strong Short Built Up @ OTM 9700 CE Option (Rise in OI and fall in price)
This indicates that chances are very high for the nifty to move towards 9400 from 9600. Totally
bearish market.

SHORT COVERING & LONG UNWINDING

This is interesting. Refer to figure 3 again
Suppose initially the maker is at point no 1 and suddenly there is a pullout of contracts (CALL
contracts). This would now happen only in two ways.
Either the pullout would be led by buyers or the sellers. So OI would decrease in both cases.
Who caused it would be known only through price action.
If the sellers want to move out then to square off their position they need to buy back contracts
that they have already sold. So their buying action would lead to increase in demand and thus
prices. This would be Short Covering.
If the buyers want to move out then to square off their position they need to sell their existing
contracts. So their selling action would lead to increase in supply and thus decrease in prices.
This would be Long Unwinding.
So the identification goes as follows
Short Covering is Fall in OI accompanied with rise in price
Long Unwinding is Fall in OI accompanied with fall in price

In order to analyze it further we need to focus on the fact that OI is decreasing. But the big
question is WHY OI is decreasing and who is leading this closure and under what
circumstances. Think in following manner

● If a seller of contract is leading the contract closing/OI reduction then it may be because
of two reasons
○ To book his/her losses and save from further loss
○ To realize the profit

● Similarly If buyer of contract is leading the contract closing/OI reduction then it may be
because of two reasons
○ To book his/her losses and save from further loss
○ To realize the profit

So the conditions for both buyers and sellers are the same, it just happens during different
market conditions.

In fact all these conditions happen simultaneously. Let us try to understand it further.

Let us consider the following hypothetical situation.

Nifty spot price 9600 and we have a Long built up at 9800 CE option along with short built up at
9700 PE strike rate. So the signal is strong that the price would move towards 9800.
Now the price starts rising and reaches 9700. What would happen
We will still expect the Long Built up to grow stronger at 9800 CE.

Now the spot touches 9800. Here sellers start becoming nervous. Some may want to exit as if
the trend continues they would come in a loss making situation. These nervous sellers would
square off their position. However they may be sellers who expect that collective strong
resistance would lead to reversion of trend. So nervous sellers would exit and aggressive sellers
may enter. What nervous sellers would do is to close their contracts and what aggressive sellers
would do is to write new contracts. In this situation the price of option and OI doesn’t change
much.
Now assume price crosses 9800 and touches 9900 and trend establishes. What would happen?
Sellers would just want to exit by squaring off.Their action would create demand and thus further
rise in price of option. So OI would decrease and price would increase as sellers are covering
their position to book their losses.
Now assume the nifty touches 10000 and the trend slows down. Option buyers feel that
momentum is losing and call it a day. They would press the sell button and exit the market to
book their profits. They would have to sell their contacts and thus increase the supply. This
would lead to fall in prices along with fall in OI.

The cycle would look like this

i. Nifty @ 9600: Long Built up @ 9800 CE/Short built up @ 9700 PE: Strong bullish signal
ii. Nifty 9600—->9700: Long Built Up @ 9800 CE continues
iii. Nifty 9700—->9800: Nervous sellers-exiting position/Aggressive sellers -writing new
contracts: OI doesn’t change much
iv. Nifty 9800—->9900: Sellers start panicking: Would square off: OI falls.Short Covering.
Further rise in option premiums.
v. Nifty 9900—->10000: Buyers call it. Day. Book their profits: Would sell their existing
contracts. Oi decreases.Long unwinding.Option premium falls.

This is a hypothetical example..reality would be a bit distorted but things actually shape up in
this manner only.
I would again request you to read this section thoroughly to imbibe the understanding of these
four concepts at a functional level.
 OI SPURTS- 4 QUADRANTS

Now that you have a basic foundational understanding of Open Interest and its relationship with
change in price we must proceed with learning the practical aspect of using this information to
take actual trades. OI spurts is the answer to this query. OI spurts is a classification of strikes
according to the relationship between theri change in price and change in OI. In short it is a
table that reflects all the strikes that exhibit similar behavior.
It will classify all the strikes into 4 quadrants of Long Buildup, Short Buildup, Short
Covering and Long Unwinding.
NSE also publishes this information but the user interface is not useful if you want to do quick
trading. OI Pulse’s OI Spurt feature simplifies the job for you.
It will look something like this

Here you can see the strikes falling in different quadrants at any given instant. Unlike the NSE
website you can see the data separately for Nifty and BankNifty.
Lets see what these quadrants are and what do the strikes appearing in them represent
1. Quadrant 1 (Q1): Rise in OI- Rise in Price
If you can recall this is something similar to Long Build up that we learnt while analysing
Futures OI. This holds true for options as well.
The strikes appearing under this quadrant (either CALL or PUTS) are those strikes
where the Option buyers are showing interest. If the buyers are active they would drive
the OI as well as the price upwards and this is what is the essence of this quadrant.
So if you are a buyer then you must focus on the strikes appearing in this quadrant.
However there is a very important catch in this. A strike simply appearing in the
quadrant does not qualify to be a prospective buying option. We have to assess its
“STRENGTH”. The strength has to be assessed on the basis of % change in LTP and %
change in OI. If we see more than 50% change in LTP and more than 50% change in OI
then it is a strong signal that buyers are aggressively buying these options and thus they
may drive the prices further upwards.

Also if you see CALLs appearing in this quadrant with strength then it points that markets
may witness an upward movement. Similarly if PUTS appear in this quadrant with
strength then it points that markets may witness a downward movement.

So as a buyer of Options always focus on strikes appearing in Q1. If they are appearing
with more than 50 % change in LTP and OI then it is likely that the Premiums of these
strikes may rise further and thus they may be considered for buying provided all the
other connecting dots are also giving the same signal.

2. Quadrant 2 (Q2) : Rise in OI-Slide in Price

As learnt earlier Rise in OI along with slide in price points towards Short build up in
Futures. Similarly in options the concept is valid too.Strikes appearing in these quadrants
are those where the option writers are getting aggressive. They would like the option
premiums to slide further and expire worthless, so that they can capture the maximum
profit. However, as in Q1 not all the strikes convey strong signals. Only those strikes with
more than 50% rise in OI and more than 50% slide in price would actually give a strong
signal.
Thus if you are an Option writer then you need to focus on strikes appearing in this
quadrant provided that change in LTP and OI are more than 50%.

Also if you see CALLs appearing in this quadrant with strength then it points that markets
may witness either a downward movement or may just consolidate.. Similarly if PUTS
appear in this quadrant with strength then it points that markets may witness an upward
movement or may just consolidate.
 3. Quadrant 3 (Q3) : Slide in OI-Rise in Price
This quadrant is very similar to the Short Covering phenomenon of Futures. If the strikes
appear in this quadrant then it means that the writers of these options are covering their
position thus we may witness a rise in premiums and provide a buying opportunity.
Needless to say the strength aspect that we saw in the other two quadrants also apply to
this quadrant.
If you are an options buyer then strikes appearing in these quadrants with strength may
be good buys for the option buyers. However it needs to be taken into consideration that
short covering rallies though violent are usually short lived. Thus perfect timing and
execution is very essential to play with strikes appearing in this quadrant.

4. Quadrant 4 (Q4) :Slide in OI-Slide in Price

We advise retail traders to avoid strikes appearing in this quadrant. Usually deep OTM
options would appear in this quadrant. Such strikes are usually used by big players for
hedging their positions and may see sudden movements. Thus it is best to avoid these
strikes especially for buying.

Now let us see how we can use OI spurt to

1. Identify the Sentiment of the Market
2. Quantify the strength of the Sentiment

We discussed that OI Spurts categorizes the Options data into 4 quadrants.

Long Build Up Short Buildup SELLER ZONE

BUYER
ZONE

Short Covering Long Unwinding AVOID ZONE

4 OI Spurts Quadrants

For all practical aspects we shall ignore Q4 i.e Long Unwinding and never ever trade with
strikes appearing in this quadrant. These will be majorly deep OTM strikes used by big players
for hedging.
So now from trading aspect we need you to know that if you are a buyer then focus only upon
Quadrant 1: Long Buildup
Quadrant 3: Short Covering

And if you are a seller then focus upon Quadrant 2: Short Buildup.

So what I mean by this is that if you want to buy options then focus only on the side (either
CALL or PUT) that appear in Q1 or Q3.

We will understand this by example

You can observe that in the above diagram only PE’s appear in Q1 so you should only think of
buying Puts.

Now consider this example

If such a situation arises then focus on buying CE’s.

And similarly you can decide to sell options based upon strikes appearing in Q2:Short Buildup.

Now at any moment of time you will have different strikes appearing in different quadrants, so is
there a way to gauge the Market sentiment based on data appearing in different quadrants?
Well definitely yes.

In order to gauge the market sentiment with confidence we need to specifically look at two
things appearing in the OI Spurts Table
1. Combination of Strikes in quadrants
2. % Change in OI and % change in price

Combination of Strikes in quadrants

Kindly guess what will happen if see following combination
Q1: LongBuildUP: Puts
Q2: Short Buildup: Calls
Q3: Short Covering: Puts
Well this means that
1. Put buyers are happy to buy puts
2. Call sellers are happy to write Call options
3. Some Put writers are scared and covering their position

SO this is overall a highly Bearish scenario.

Just observe this combination.

Above data is for BankNIfty 25 May 2021

Lets see the price chart of corresponding day
It was a Bearish Day

Now kindly guess what the situation would have been if we got following day

Q1: LongBuildUP: Calls

Q2: Short Buildup: Puts
Q3: Short Covering: Calls
Let us observe the chart for the day
It was a clear Bullish day.

So whenever you get such a combination you can derive some information about market
sentiment.
Following table will summarise this for you

S.no Q1: LongBuild Q2: Short Q3: Short Interpretation

up Buildup Covering

1 CALLS PUTS CALLS BULLISH

2 CALLS PUTS MIXED BULLISH

3 MIXED MIXED MIXED INCONCLUSIVE

4 PUTS CALLS PUTS BEARISH

5 PUTS CALLS MIXED BEARISH

Now in the above discussion we have identified the overall context of the market. But there must
be a way to know the degree or the strength of such Sentiment. We derive that by comparing
the % change in OI with % change in Price.
Now this is something that we have arrived at by virtue of pure trading experience of 15 years.
The golden rule to identify the strength of the sentiment is that

“If we get 50% change in OI along with 50 % change in price then it is a strong
sentiment.”

So if we get these magical figures of 50 & 50 it implies a strong sentiment. It may be Bullish or
Bearish.

You see that 21 May 2021 as shown in above example was strongly Bullish let us see how the 3
quadrants showed % change in OI and % change in price
So we see that we got more than 50% change in OI and more than 50 % change in Price in all
the quadrants across all the strikes. This is a sign of High Bullishness.

We get such a pattern of OI spurts on a regular basis in the market and that may be identified
and used to our best advantage if we are aware of it.

Now what about other days when we do not get such data?
On this day it is bound to be a range bound day where Option Sellers try to dominate by
controlling the price. They will take the market in one direction then pull it back to trap the
retailers.
 Trading Example
Correlating Data with Market
Impact of DOW

Today's market was a very unusual market as it was influenced by Domestic News and then
Global factors one after another.

Today there was some news about the Media address by the Finance Minister and there were
some speculations about benefits of the Banking industry, so our BankNifty index saw a rise.

Now how we identified trading opportunities is the key. We shall discuss some key points here
1. Identifying the trend using Data & Price Action
2. Identifying Entry levels
3. Trading style- Scalping or Positional Trading
4. Cautiousness after Profit Booking.

Identifying the trend using Data & Price Action

 ● At around 12.00 PM today the price was hovering around the Day’s High.
● Opening Low was never broken throughout the day..so meaning Bulls were trying to
dominate.
● At 12.09 the price broke the Days high with Volume > 50 K .
● This Price action accompanied with Volume meant that Bulls were up to something.

Now let us examine this data with Trending OI

So we see that Call Sellers were covering their position and Put writers were writing more Puts
and the Change in OI got Trending thus a Bullish scenario.

OI Spurt Data
Let us now examine what OI SPurt data was telling us at that time
Bank Nifty OI Spurt Data around 12.
We see that Call buyers were not very confident of taking the market higher though Put writers
are very relatively clear that this market may not go down at the moment.

It is also very important to see what Nifty was doing at this instance as this too will have an
impact.
PLEASE LOOK THAT NIFTY IS AT TOTAL DIVERGENCE AT THIS INSTANCE .
We saw Long Buildup on PE side and Short buildup on CE side thus Nifty was Bearish at this
instance.
This dampens the Bullish Sentiment on Bank Nifty too.
Scalping vs Positional
NOw we see that Price/Volume Action and Trending OI point towards Bullish trend but OI Spurt
clearly shows that though the Market wants to go higher but Call buyers are not confident.
In such a situation it is better to opt for Scalping over Positional strategy.

As the market began to move up we didn't see much Volume bars coming into picture thus
although the market was Bullish but not absolutely Bullish.
So it made sense to scalp for 20-30 points rather than holding the position.
RSI Based Trade

At 13.00 hrs we got a dip in Price and RSI also retraced a bit after touching 80 level. This is a
very good opportunity for entering Long trade.

Trades after 13.03

● At 13.03 the Price broke the Previous Day High and that too with Volume.
● However RSI was above 80 mark a danger level thus we needed to be cautious.
● So it was wise not to trade with large quantity in this situation
● So if you were carrying previous positions then you could have trailed it with tight Stop
Loss and entered only with few quantity risking a small portion of your profits and not of
capital
What happened thereafter was a state of Euphoria as the price went straight up to 38952 that
was the Previous Week High and it didn't make any sense to look for fresh entries.
● RSI was way too above 80.
● So it was a NO for fresh trades.

In this scenario Long Unwinding/Profit booking may happen at higher levels and retailers
provide an exit to smart players.

Thus it made sense to avoid trade at this juncture and look for trades only at support levels like
Supertrend,swing high/low.
Super Trend Retracement Trade

A small scalp when price touched Supertrend was possible and one could have easily captured
20 points in this trade.

IMPACT OF DOW
Now with Bank NIfty rallying up in such a state of Euphoria and taking resistance at Previous
week High do you think it made sense to look for Buying Calls at such time.
The answer is NO but there is one major factor that contributed to this decision. It was our first
connecting Dot-US 30 Futures.
Dow was falling steeply and our BankNifty at Tough Resistance level. So it made sense to give
up looking for buying Calls at all.
Now just look at what happened to Bank NIfty thereafter
Just notice the correlation between the two.
Thus we believe that today's Trading Day was an eye opener and you could easily correlate the
teachings with practical market movement.
In the next session we shall focus on other topics like VIX and Implied Volatility that would make
the picture more clearer.

We hope that you are enjoying this session and gaining maximum out of it.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 5: 19 Jan 2022
Hello everyone. We hope that all of you must be enjoying the Mentoring session and applying all
the learnings in the live market. As we proceed further we shall be learning about all the Dots
and finally how to connect them. OI Pulse will be a great asset for you in this direction.
In the previous session we saw the importance of OI spurts and how it may be used to find the
market trend. In today's session we discussed two more connecting Dots

1. India VIX
2. Implied Volatility
3. We shall discuss them independently and towards the end we shall see how to look at
these two aspects from Buyer/seller perspective.
4. Implied Volatility and OI Pulse-Active Strikes IV

Both of them pertain to the impact of volatility on Options trading. We shall discuss them in
today's synopsis.

Before we start the discussion I would like to mark a clear distinction between the two terms that
are often confused with one another.

● Both India VIX and Implied Volatility measure Volatility.

● India VIX measures Volatility of the Broader market i.e Nifty of which Bank Nifty is a
major constituent.
● Since Bank Nifty is a major constituent of Nifty, the same implication of VIX may be
assumed for Bank Nifty as for Nifty.
● However this assumption may not be true at times as sometimes Banknifty may be at
total divergence to Nifty and other constituents of Nifty like IT/Automobile/Pharma/Metals
etc may be responsible for it.
● Options sellers take into account volatility and this “sellers volatility” is reflected in the
Options chain as “Implied Volatility”.
● Thus we have Implied Volatility for both NIfty as well as for Bank NIfty while India VIX is
for NIfty and has the same implications for Bank nifty (most of the time but not always).
● This concept is explained in the following diagram too.
Now having understood the broad contours let us proceed in exploring them in a finer
sense.

VIX
It stands for Volatility Index and also known as the Fear Index. We can think of it as an
indicator that quantifies the risk perceived by the majority of market participants. If VIX
levels are high then it means markets are highly volatile and if they are low then it means
that markets are relatively stable.
Well this is the textbook definition that you would find everywhere on the internet but find
it hard to actually understand. So in order to get complete clarity we shall focus on
following aspects of VIX
1. What is Volatility in VIX?
2. What is the interpretation of VIX for rising and falling markets?
So let's begin!
 1. What is Volatility in VIX?
Volatility is one of the most important but least understood aspects of Options trading.
We will try to understand Volatility through something known as the “Normal Distribution
curve”.
Though it may sound a bit complex, just try to understand through this diagram.

Volatility refers to how far the price tends to go away from current price.

In the above diagram along the X axis are shown the price ranges and along Y axis is
the probability of occurrence. You can observe that for the Price of 34000 three points
have been marked in the graph 1,2 & 3. Out of them Point no 1 is highest along Y axis
thus has highest probability of occurrence, that means that price 34000 is likely to be
attained with highest probability when we have “Moderate-volatility”. On the basis of this
we will try to understand volatility.
Just consider the following hypothetical example.
Consider we are looking at BankNifty just before the Union Budget is to be announced.
Nobody knows what the real outcome would be. The budget may be good and the
Finance Minister may announce reduction in Corporate Tax rates or the budget may be
really disappointing wherein the same Finance Minister may announce a hefty increase
in Corporate Tax rates to finance the expenditure against Covid. There is a lot of
uncertainty with regard to outcome.
In case the budget is positive the Banknifty may move strongly from 33000 towards
34000. But in case the budget is negative, BankNifty may move down towards 32000 as
well. This situation is known as the “HIGH VOLATILE” environment.
Thus during times of high volatility prices tend to move farther away from the mean or
current price.
Just look at the “High Volatility Distribution” curve in the diagram. 33000 is the mean or
current position and the shape of the curve is relatively flat as compared to other other
curves. So what does this mean? It means that the probability of price to stay at 33000
itself is minimum when we have a high Volatility. Also the probabilities of extreme prices
like 35000 or 31000 is maximum when volatility is maximum.
Now observe the “Low Volatility Distribution” curve. As per this diagram the probability of
price to stay at 33000 itself is maximum in this kind of environment whereas chances of
price going to extreme levels like 35000 or 31000 are very low though not impossible.

So just summing it up, in High Volatility environment Prices tend to go very far away from
the current level whereas in Low Volatility environment Prices tend to stay around the
current level or mean prices.

So I guess that you must be clear now what exactly you understand by Volatility.

SO VIX quantifies the volatility as seen by the market participants. If VIX is high
then market participants see the market to be highly volatile and likewise very less
volatile if VIX is less.

Kindly go through following video to get a better view about VIX

https://youtu.be/wdkSqaLNVvk
 2. What is the correlation between VIX and price levels?
We will not go into the science behind calculation of VIX as it is not necessary. What is
important is the relationship between VIX and Price and how it impacts the market
sentiment. We have summarized correlation between index prices and VIX which is as
under

● If Price Increases and VIX decreases it is a bullish scenario.

● If Price Increases and VIX increases it means the market doesn’t like upwards
movement of Price so it may revert back.
● If Price decreases and VIX increases it is a bearish scenario.
● If Price decreases and VIX decreases it means it doesn't like the down
movement of the market.
● If VIX behaves erratic during the day then VIX should not be taken into
consideration as a factor.

As an exercise plot the VIX chart and try to analyse the times when VIX levels
have been historically high.

Implied Volatility

In this section we shall focus upon

● What is Volatility?
● What is “Implied” in Implied Volatility?
● How can IV be used in Trading?

What is Volatility?
Volatility is one of the most important but least understood aspects of Options trading.
We will try to understand Volatility through something known as the “Normal Distribution
curve”.

Though it may sound a bit complex, just try to understand through this diagram.
Volatility refers to how far the price tends to go away from current price.

In the above diagram along the X axis are shown the price ranges and along Y axis is
the probability of occurrence. You can observe that for the Price of 34000 three points
have been marked in the graph 1,2 & 3. Out of them Point no 1 is highest along Y axis
thus has highest probability of occurrence, that means that price 34000 is likely to be
attained with highest probability when we have “Moderate-volatility”. On the basis of this
we will try to understand volatility.

Just consider the following hypothetical example.

Consider we are looking at BankNifty just before the Union Budget is to be announced.
Nobody knows what the real outcome would be. The budget may be good and the
Finance Minister may announce reduction in Corporate Tax rates or the budget may be
really disappointing wherein the same Finance Minister may announce a hefty increase
in Corporate Tax rates to finance the expenditure against Covid. There is a lot of
uncertainty with regard to outcome.
In case the budget is positive the Banknifty may move strongly from 33000 towards
34000. But in case the budget is negative, BankNifty may move down towards 32000 as
well. This situation is known as the “HIGH VOLATILE” environment.
Thus during times of high volatility prices tend to move farther away from the
mean or current price.
Just look at the “High Volatility Distribution” curve in the diagram. 33000 is the mean or
current position and the shape of the curve is relatively flat as compared to other other
curves. So what does this mean? It means that the probability of price to stay at 33000
itself is minimum when we have a high Volatility. Also the probabilities of extreme prices
like 35000 or 31000 is maximum when volatility is maximum.
Now observe the “Low Volatility Distribution” curve. As per this diagram the probability of
price to stay at 33000 itself is maximum in this kind of environment whereas chances of
price going to extreme levels like 35000 or 31000 are very low though not impossible.

So just summing it up, in High Volatility environment Prices tend to go very far away from
the current level whereas in Low Volatility environment Prices tend to stay around the
current level or mean prices.

What is “Implied” in Implied Volatility?

Implied Volatility is a concept that is unique to options in Derivative trading. The term
“Implied” is the most unique element.
Volatility is a mathematical concept and mathematical concepts are usually calculated
using some historical data. We also calculate volatility based upon the Historical price
changes of a security but such a Volatility is known as “Historical Volatility”. IV is
something that is derived out of Options Premium by reverse calculation. If you wish to
understand this concept then read the following text
I guess you remember what factors determine Options Premium. Here is a quick revision

We had mentioned earlier as well that Volatility is the most crucial factor in determining
the options premium.
Before knowing what Implied Volatility is, we will understand how it is calculated. We
know that options premiums are a reflection of demand and supply equilibrium. But
there are many mathematical models too that are used by sellers to determine the
correct option price. One of them is Black Scholes model. This computer model gives
optimum price of an option when we feed following inputs to the system
1. Spot price
2. Interest Rate
3. Days to Expiry
4. Strike Price
5. Volatility
However what price we get as an output may or maynot be the same as the actual
options price.
Let us say the theoretical price of 33000 CE comes out to be Rs 126 but actual trading
price is Rs 150. So why is there a difference? Is our mathematical model flawed...NO. It
is because our input parameters are not correct. Out of all the input parameters it is
Volatility that is the problem. We do not know what the correct volatility is.
So we do a reverse calculation and calculate which Volatility level would give options
premium to be Rs 150. This reverse calculated Volatility is known as Implied Volatility.

So this is something that is Good to know but what is the significance of it? Well IV has
many advantages. If you compare IV with historical Volatility that can be calculated from
actual price variations we can come to know whether Volatility is high or low. Thus we
can plan to trade accordingly.

How can IV be used in Trading?

So in the previous section we learnt theoretical aspects of IV that is something I call

“Good to know” and which you may use sometimes to flaunt :) . But in the real world we
need to focus not upon what is IV but how do we use it to our advantage.
Before we proceed further I would like to draw a correlation between the Options
premium and the IV based on this above discussion

Higher is the IV higher is the premium.

Lower is the IV lower is the premium.
I guess that if you have understood the role of IV in determining the OPtions premium
this correlation can be easily understood.
Now we will dig a little deeper into IV to know what else it can offer Options buyers in
terms of information. For this we will see what IV generally represents.

So these are the two most important piece of information that IV provides us
RISK PERCEIVED BY SELLER
If there is too much Volatility around the corner such as the period before Budget Day or
RBI Monetary Policy or Fed Rate meeting then an option seller would like to sell the
option at a higher premium than usual premium. In such circumstances of uncertainty
Option Premiums will be high and so will be the IV.

This Risk factor will only be there around special occasions but during most of the times
it is Demand & Supply Imbalance that is reflected in IV levels across the Option chain.
This information will be the one of the most important pieces of information for options
buyers.

So let us discuss demand and supply first.

We must know two concepts to understand this phenomenon
● Higher Demand means higher Price
● Higher Supply leads to lower prices

That's it. You can think of it in terms of prices of Onions whose demand and supply often
gets distubed.

So how do we use this in Options trading?

We will use this aspect of IV to know where the buyers are concentrated by comparing
IV levels of Calls & Puts across the Option Chain.
This is a unique concept that you will not find in textbooks but is a result of observation
made by our Master Scalper, Mr. Sivakumar Jayachandran.

So do we need to compare all the strikes across the Option Chain?

NO. We should focus primarily on ATM and nearby strikes.

We will understand this by studying Nifty Options chain

We see here that the ATM strike is 15600.
Now 15600 CE’s LTP was 39.6 and 15600 PE’s LTP was 45. Certainly you see that PE
is more expensive than CE. So does that mean that there are more buyers on the PE
side?
The answer is NO. For determining where the Demand is higher we need to compare
IV’s and not Prices/premiums because premiums depend upon a lot of factors one of
which is IV.
Now IV of 15600 CE is 13.48 and that of 15600 PE is 12.62. So the buyers are inclined
towards buying CE’s rather than PE’s.
Now similarly compare the data for 3 strikes across the ATM it will give the same
analysis.

So based on the difference in IV levels we can know where the buyers are concentrated.

But this is just one half of the story. We need to know how strong the sentiment of the
buyers is.
That is possible if we know the relative difference in IV levels. If IV levels differ by a big
amount then buyer sentiment is strong and if the difference is small then it is a weak
sentiment.
So what are those magical numbers?
This is again something that we know by virtue of 15 years of trading experience of Siva
Sir. So the different IV combinations that we are important to determine Market
sentiments are
 10-10
10-15
20-20
20-30
40-40

We will discuss them one by one to understand their importance

1. IV Level 10-10
What we are actually referring to in the above statement is the scenario where the IV
levels on both the Call & Put are very low and of same magnitude.
So it may be 8-8 or 12-12, the concept is that the absolute IV number is low and the
difference of IV between Calls & Puts near ATM’s is almost zero.
● This scenario is very favorable for Option buyers.
● If IV is low then premiums are low.
● In such a situation any move in Bank Nifty/Nifty shall result in higher appreciation
of premiums.
We will understand this by comparing a high IV environment with a low IV environment
and what happens when Banknifty moves by 100 points. For simplicity we will assume Banknifty
spot to be at 30000 in both the environments
This is how IV impacts premium and change in premiums.
If IV is lower then any change in Bank Nifty will lead to greater change in Options premium
compared to situation when IV is higher.
Thus lower IV means greater opportunity for Option buyers and they should play aggressively in
such environments.

2. IV Level 10-15
This condition refers to a situation where buyers will try to dominate one side but without much
ammunition. Since Sellers will not abandon their fort option buyers are likely to suffer if they hold
their positions for too long.
In this case since sellers are active they will try their best to move the market against the buyers
and in this process the option premiums on side with higher iV will crash more faster.

Just observe this case. Here IV on Call side is around 80 and on Put side it is around 75 and
just note what happened to premiums on Call side when market fell down. It crashed much
faster whereas premiums on the Put side appreciated hardly anything.
Though we have mentioned levels as 10-15 but we want to stress more on the relative
difference here rather than absolute numbers.

In such an environment it is better to scalp and gain quick entry and exit.

3. IV Level 20-20
This situation is a writer's paradise. They will dominate both the sides and will not give any
chance to Option buyers. The sole objective of this pattern is to eat premium options. This
usually happens on Wednesday’s before the market expiry.
Just observe what happened to Banknifty options premium on both call and put sides when IV
levels were around 25 on both Call & Put.
On this day it is better to play Short Straddle as you will not get much moves on Banknifty/Nifty
as premium decay will be the order of the day.

4. IV Level 20-30

This situation is idle for options buyers. In this scenario Options buyers would just rush into the
system and take everything by storm. On this day you would see perfect quadrant formation in
OI spurts.
However, do note that this pattern occurs only for short duration thus it would be better to trail
your profits rather than waiting for the day’s end.

5. IV Level 40-40
This situation refers to the highly Volatile periods. During such periods because of high IV there
will be hardly any appreciation of premium even if the market moves in your direction. Consider
following example
In this example you see that IV on the Call side is around 47 and on the Put side it is around 61.
On this day the market fell quite significantly but notice how much the premiums of PE
increased despite the fall. On other hand notice the fall in Call premiums.
This is the magic of IV.

So now you realize why IV is an important factor in options trading.

So let’s summarize our understanding about IV.

● Higher IV Means higher premium and lower IV means lower Premium.
● IV signifies the demand and supply disequilibrium.
● In the option chain, if the IV of one side(assume CE) is higher than IV on the other
side(let us say PE) then it means that buyers are inclined towards the side with higher
IV(CE).
● We need to consider IV of the ATM and 3 nearby strikes in both directions for making a
conclusion.
● Buyer sentiment can be gauged by the relative difference between IV’s on both sides.
● Strong Buyer sentiment is signified by IV difference levels of 10 on both sides.
 ● Lower IV levels provide a good environment for buyers.
● In times of Higher IV levels small retail buyers should avoid the market.

So today we learnt about the theoretical aspect of IV and OI spurts. In coming sessions we will
focus more on their practical aspect. So I would request you to brush up your concepts for the
upcoming session.

INDIA VIX & IMPLIED VOLATILITY FROM BUYER & SELLER PERSPECTIVE

This is the most important practical aspect of these concepts and would be very handy in taking
actual trades.

India VIX will clearly demonstrate when the sellers are entering. This will be clear when VIX will
rise. Rising VIX will signify the entrance of Sellers who want to take the market lower.

Implied Volatility will denote the action of Buyers. The side CE or PE with higher IV will denote
the presence and strength of the Buyers.
The side with higher IV will have buyers present on that particular side but we need to confirm
the strength of the Buyers by comparing the IV levels that we discussed in depth in the IV
section.

Now we shall learn how to form a view based on IV levels and how OI Pulse can help us in this
regard.
Which strikes do we need to consider from IV Point of view?
For all practical purposes we must look at ATM strikes and 3 strikes above and below it to form
any view based on IV.
This is because the majority of action would help in this area alone.

Now we must compare these two IV levels with one another to form a view.
OI Pulse helps you a great deal in this regard. It has a feature that compares the IV’s of these 7
strikes and gives a single figure based on weighted averages so you don't have to track all the
strikes together.
On selecting the option you would get this page
It would tell you the collective IV levels on the call and Put side.
This would help you to know the strength of the buyers with respect to sellers and take decision
as per IV chart levels.
 Trading Ideas of the day

Today it was a patience test day for the buyers as the overall sentiment was Bearish but we had
to wait for the correct moment to trade.

So why the bearish Sentiment?

DOW was Bearish

Dow fell by more than 500 points, which was 1.5% and this is certainly Bearish.
Falling DOW/US 30 Futures

US 30 Futures was falling in the first half of our markets that amplified the impact of the dow fall
yesterday night.
Higher VIX
Yesterday VIX closed around 17.8 level and today it never went down and rather was above that
level for the entire day.

Thus any upside move except the opening moments made no sense to trade.

The only possible trade occurred around 12.30 when the Price broke Day’s Low and we got 2
candle confirmation.

This was confirmed by OI spurts data as we got PE Long buildup and CE short build up with 50
% change in price and OI.
Also VIX was rising during this period

Thus our Dots connected well and it made perfect sense to trade in PR direction at that moment
and scalp for our 1 % intraday target.

We learnt about a new concept today. Kindly try to develop an understanding of these concepts
at a functional level so that you may use it to your advantage next time. We shall cover
remaining Dots in upcoming sessions and learn how to connect them to take a trade.
.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 6: 25 Jan 2022
Hello everyone,
We hope that by the 6th day you must have got a sense of how you can become a professional
trader. The only possible way is through discipline and dedication. You need to trade according
to a system and play by the rules , that's it, no Rocket science.
So till date we have covered 5 connecting Dots today we shall focus on the remaining ones and
try to understand the already discussed topics through a series of questions.

So starting today we shall focus on understanding the Dots in a detailed manner.

So far we have discussed following Dots

1. Global Markets/Dow Jones
2. Open Interest
3. OI Spurts
4. India VIX
5. Implied Volatility

Today we will discuss the remaining Dots that are mainly chart indicators and actually help us
take trades. These shall be
1. VWAP
2. RSI
3. Super Trend
4. Parabolic SAR
5. VWMA

Before discussing the new Dots we would like to address a very very important question

“HOW TO INTERPRET DATA?”

The data being referred to in this above question points towards the already discussed Dots i.e
Dow Jones/VIX/IV etc.
You must look at the data to form a view for the intraday moves. But in order to do so you need
to analyze the data properly.
The correct manner to do so is to look at the data from 2 different lenses.
So you need to analyse the data under two different lenses to form the correct view for intraday
trading.
This shall apply to all the Dots. Let's look at them individually and how to form a view for
intraday

DOW JONES
LONG TERM/POSITIONAL VIEW

The best way to do so is to look at the Dow Jones Chart on a longer time frame. Daily chart
would give you a clearer picture.

So lets look at DOW Jones Daily chart

So if we look at DOW then it states that it was in a Down Trend but there seems to be a Trend
Reversal here
1. We got a strong Pin Bar Candle type
2. The Price took support at Previous Swing Low
3. The Price Closed above the Swing Low
4. The Price close above Previous Day Close
5. Buyers moved the price strongly by 1000 points from Days Low to close in Green.
Though the Price rose by just 0.29% so it seems nothing important, but if you analyse the
charts you will see that it is Strongly Bullish.

Now you know how to analyse Dow on a longer time frame, but in order to form a view for
intraday trading you must look at Intraday Dow Moves as well.
Your view according to DOW should be as per following chart

So your decision making should be as per this procedure.

Now let us see how DOW Futures behaved intraday when our market was open
So just see how we need to form a view taking into consideration both the long term position of
Dow as well as Intraday moves of Dow.

Now Having understood Dow let's move on to next DOT i.e India VIX
INDIA VIX
LONG TERM/POSITIONAL VIEW

We know that there are different kinds of pliers in the market Long Term Players, Short Term
Players, Scalpers etc.
Being a scalper we must know what is the action of Long Term players in the Market. VIX helps
us to know this.
However, to trade we should also know how VIX is behaving intraday. So we shall be analysing
VIX from two perspectives

So we need to look at
1. What is the order of VIX level to know whether Buyers or Sellers are active
2. How is VIX changing intraday to know if there are any opportunities.

Just analyse the VIX data as under for 25th Jan

For knowing Action of Long Term Players we shall look at Daily Chart of VIX to know the
bigger picture

VIX rose from 18.5 to 22.85 levels, this clearly shows that Sellers are in control on a
positional level.

Now if on next day i.e 25th if the VIX continues to rise with fall in price then Sellers would
continue the pressure and we will get good opportunities on Short side if however VIX
falls with price rise then we may be Bullish but not absolutely Bullish till the time VIX
drops below 18.8 levels. So trade with caution on the Bullish side.
This is what the VIX data conveys.

Now on similar lines we have to analyse the next connecting Dot i.e Implied Volatility
IMPLIED VOLATILITY
LONG TERM/POSITIONAL VIEW

IV is the most important but least understood concept of all the indicators.
We need to look at IV from 2 different lenses.
1. What is the order of magnitude of the IV levels. This would tell us whether Premiums are
expensive or cheap and whether we’ll get Premium erosion or Premium appreciation on
the day.
2. Secondly we need to look at the respective difference between the IV levels on the Call
and the Put side to know where the buyers are and what is their conviction to take the
market higher or lower.

Let us understand this by example

Let us compare IV levels of strikes of Bank Nifty on a Tuesday belonging to two different weeks
If you analyse the general level of IV’s we can see that IV’s on 25 Jan Tuesday were higher than
31 whereas on 18 jan they were lower than 25 for most of the day.
This means that Premiums were more expensive on 25th Tuesday as compared to 18th
Tuesday. Thus there was more scope for the sellers on 26 th Tuesday for Premium erosion.

Secondly we need to look at the respective difference between the Call and Put side IV’s and
need to analyse as per this chart
This table shall help you understand how the market is likely to behave intraday.

So the point that we want to put here is that the data needs to be analysed on two different
timeframes one is a longer time frame and the other is purely from an intraday perspective.
You should have maximum confidence and thus go for higher quantity if the the views go hand
in hand.
Now similarly you must analyse Open Interest and Price Action.

Now in addition to these indicators we have another 5 Connecting Dots that form our chart
indicators. These will be exclusively for intraday only
These are as under
A. VWAP
B. RSI
C. Supertrend
D. PSAR
E. Volume
F. VWMA

We will discuss them one by one and learn their importance.

 A. VWAP
It stands for Volume weighted Average Price. It is the average price at which an underlying has
been traded till time. It takes into consideration both the price and volume
As an example, think of it as the average price at which you have bought all the units of a stock.
Let's say that you undertake following transactions

S.no Time Buy Price Volume(Qty) Average Price(VWAP)

1 9.15 100 1 100

2 9.20 110 2 106.66 ( (100x1+110x2)/(1+2) )

3 9.30 90 4 97.14 ( (100x1+110x2+90x4)/(1+2+4) )

I think that this example is enough to know how VWAP can be calculated.
Now coming to Banknifty if all the prices and all the volumes for intraday transactions are taken
into consideration and the same formula is applied then what we get is VWAP for bank nifty
Futures.
This VWAP can be calculated for anything that is traded. These can be Call & Put options as
well.

Significance of VWAP
We know that Bank Nifty/Nifty Futures are index futures and are highly liquid. It is because big
players who trade in thousands of lots actively trade during market hours. In light of this
following is the significance of VWAP

● VWAP represents the average price for all the volumes that have traded today.
● It marks a clear demarcation between people who are Bullish and people who are
bearish. You can think of it as “LOC” between Bulls and Bears.
● Whenever price is above VWAP the Bulls are in control and below the VWAP bears are
in control
● Majority of times whenever price tests VWAP each player tries to protect its dominance.
So either the price will bounce back from VWAP or it may pierce down with strong
Volume.
So for all practical purposes
● “Whenever Price is above VWAP we must look for Long Opportunities and Short
Opportunities when it is below VWAP.”

● If price approaches VWAP without any spike in Volume then we can expect a
bounce back and look for trading opportunities. However if price approaches
VWAP with strong Volumes then we should be cautious as it may lead to change
in sentiment from Bullish to bearish or vice versa.

A. Supertrend
It is a trend following Indicator and tells us the trend based on previous “N” candles that we
want. So if we want to know the trend based on the previous 10 candles we can use the ST
indicator with “10” as one of the input parameters. It also uses another input known as Multiplier
that is used primarily to identify the range upto which we want to define a particular trend.

Settings that we recommend are as follows

Time Frame: 3/5 mins
ST settings :10,2

Time Frame: HIgher Time frames

ST settings :7,3

Significance of Supertrend
There are 3 important significant facts about Supertrend that help us in actual trading
1. Strength of Sentiment
2. VWAP Supertrend Crossover
3. Supertrend as Retracement

Strength of Sentiment
ST directly tells us the trend or the sentiment of the market based on its inherent definition. If it
is green in color then it means price is in a bullish trend and if it is red it denotes
bearishness.

In the above picture you can see that when price is below VWAP it usually means Bearishness
but Supertrend further lets us know the strength of bearishness.
Below VWAP when ST is also red that means Bears are in absolute control thus short trading
opportunities may be identified. But when the ST turns green it indicates Bulls are trying to
move the price upwards. In such a situation we should not trade since both Bulls and bears are
active and sentiment is not clear.

Thus the most significant aspect of Supertrend is that it helps us know when a trend is
Strong and when it is weak.
As a rule
Look for opportunities when the price is above/below both ST & VWAP and avoid trades when
price is between VWAP & ST.
Some more examples
So I guess that the significance of ST is now realised as it goes one step above VWAP to tell us
the strength of sentiment and presents us with zones where we can look for trading
opportunities and also points us zones where we should avoid trading.
 2. VWAP Supertrend Crossover
This is another significant aspect of ST. Whenever we get a crossover of ST and VWAP it
indicates strong momentum ahead. But remember we need to filter out a particular type of ST
VWAP crossover from all the crossovers.
The type of ST VWAP crossover we are looking for is one that has following two features
1. Strong Vertical Crossover (Crossover from above)
2. Crossover accompanied with strong volume(preferably >50K for BN &125 K for Nifty)

We will ignore rest of crossovers

Some examples of irrelevant VWAP ST crossovers
So I guess that you will be able to identify the eligible ST VWAP crossover now and trade
accordingly. So always remember the slope and Volume are important determinants of this
crossover trade.
 3. Supertrend as retracement
ST acts as a strong support zone whenever the trend is established. So a trade can be initiated
whenever the price approaches ST. But there are certain constraints attached to it and you must
understand the following setup to gain from this aspect of Supertrend

1. There should be a clear pre-established trend. (Preferably with 2 consecutive 50 K

candles)
2. Price should approach ST for the first time. (Second time St may not be respected)
3. Price should approach ST without strong volume.
4. Price should approach ST within 30 minutes of making a new Low.

If all these parameters are fulfilled then Supertrend acts as a Support if the previous trend is
Bullish and a Resistance if prior trend is Bearish.

Let us understand this aspect through some live examples.

Just observe when ST was not respected in first instance as all the conditions were not met
Here there was too much consolidation and the price approached ST after 1.5 hours. Here
chances of ST being respected in the first instance is quite low.

So I guess that now the importance of Supertrend can be realised as it can be used in a variety
of manners
RSI
Relative Strength Indicator or (RSI) is a momentum indicator and one of the so-called leading
price based indicators. Like VWAP and ST it too helps us to know whether the price is in Bullish
or bearish territory. This price based indicator calculates the momentum based on the “N”
number of previous candles that can be custom defined.
RSI Setting
For our scalping set up on a 3 minute time frame RSI is kept at default 14 period. So it will
determine the momentum based on the previous 14 candles of 3 minute each.

RSI Significance
The RSI is presented in a number ranging from 0-100.
This number signifies the price momentum.
The interpretation of RSI is as follows

S.no RSI Level Interpretation

1 >80 Overbought Zone(HIgh chances of reversal)

2 80-75 Bullish Profit booking Zone

3 75-50 Bullish Zone

4 50-40 Neutral Zone

5 40-25 Bearish Zone

6 25-20 Bearish Profit booking Zone

7 <20 Oversold Zone (HIgh chances of reversal)

So the added advantage of RSI is that with the number we can identify the momentum of the
price instantly.

The best zones for making an entry are in regions of 60-75 and 40-25. This is teh region when
price is expected to momentum with a speed.

Let us see these regions with examples and do note the ST and VWAP also
RSI 50-75: Bullish Zone

RSI 75-80: Bullish Profit booking Zone:

This is a very good zone to book your profits as momentum will slow after reaching here. Else
you can tightly trail your profits when RSI enters this particular zone.
RSI above 80 : Oversold Zone
This zone is a zone of great action. Here both the Bulls and Bears can get superactive. Either
the Bulls will get hyperactive and take the prices super high( similar to Pump and Dump) or the
Bers will get into action and press the sell button bringing the price immediately down. So the
best option is to trail with tight stop loss.
Do not enter the trade in the direction of momentum when rsi >80.
Kindly take note of the following example
Kindly note that at 14.45 price entered RSI region of overbought region. At that time it made a
high of 35251 it rallied further till 35348 but then suddenly turned back and fell to 35214 in a
short span and then further down to vwap level at 34928. So it witnessed a 450 point rally in a
very short period of time. So for this particular reason please avoid trading when RSI is above
80.
Only when you are an expert should you try for a reversal when RSI is above 80.

Similar observations can be made for Bearish RSI levels.

PSAR
Parabolic Stop & Reverse is another trend based indicator.
Settings:
The settings of PSAR for 3 minute timeframe are default as
Start 1: 0.02
Increment: 0.02
Maximum: 0.2
Significance of PSAR
PSAR is a leading price based indicator that gives us following information
● Trend Direction
● Strength of the Trend

Trend Direction with PSAR

If the PSAR appears above the price candle bars it implies a downward trend and if it appears
below the price bars it signifies a Bullish trend.
PSAR is the first indicator that will signal the onset of a trend. If validated with other indicators
like RSI, Supertrend it can prove very effective.

Strength of Trend with PSAR

This may be determined in two ways
● Distance from the Price Bars
● Relative spacing between PSAR dots
Distance from the Price Bars

More the distance of the PSAR dots from the Price bars more is the strength of trend.

Relative spacing between PSAR dots

The strength of the trend can be gauged by the relative spacing between the dots. If the dots
are closely spaced then it denotes consolidation and if they are widely spaced it denotes that
the trend is strong.
So if after a rally we see the dots getting closer to each other it means that it's time to book
profits and whenever the dots get apart from each other it is an indication of riding the trend.
Volume
Volume indicator is the final nail in the coffin sort of indicator to identify onset or reversal of
any Trend.
So far we have discussed
● VWAP
● Supertrend
● RSI
● PSAR
All of these are trend identifiers. We use all of them to be absolutely sure that we catch the
correct market sentiment. But this entire exercise is not complete until we get a final
confirmation from volume.
For any trend confirmation we need 2 consecutive candles with volume greater than 50K.
Ideal scenario will be when we get all the 4 indicators pointing towards a particular type of
market sentiment and we get two ascending Volume candles greater than 50 K. If the
candles are not ascending then also it is not an issue but ascending candles is desirable.
Just observe one ideal scenario

Just notice the sequence in which indicators turned bullish for this trade
1. PSAR gave Bullish signal at 11.03
2. Supertrend also gave Bullish signal at 11.03
3. At 11.24 RSI entered the region of Bullish as it closed at 61.
4. At 11.24 price closed convincingly above VWAP thus Bullishness.
5. At 11.27 we got a strong Supertrend VWAP crossover
6. At 11.27 we got a second Volume Candle in an ascending order with magnitude greater
than 50K.
Thus from 11.27 onwards it was totally Bullish and buy on every dip kind of scenario.
Please do note that Volume is usually the last but most important indicator of all to confirm teh
trend.

Now let us see one example where non confirmation of Volume can actually save us from
making bad trades.

Kindly note here

1. PSAR: Bullish
2. Supertrend: Bullish
3. VWAP: Bullish
4. RSI : Bullish
5. Volume: Not confirmed
Thus in these circumstances non confirmation by Volume saved us from entering a wrong trade
despite having so many Bullish indicators.
So overall never enter a trade unless you have Volume to support it.

VWMA
Volume Weighted Moving Average would be more used as a trade opportunity identifier rather
than a Trend identifier.
Trading Opportunities with VWMA
It would provide an opportunity for retracement trade just like Supertrend retracement trade. The
set up would be like this
1. There should be a clear pre-established trend. (Preferably with 2 consecutive 50 K
candles)
2. Price should approach VWMA for the first time. (Second time it may not be respected)
3. Price should approach VWMA without strong volume.
4. Price should approach VWMA within 30 minutes of making a new Low.

Thus overall it would provide one more opportunity before the price retraces from Supertrend.
Here is an example
So here in this example
There was a pre-established Bullish trend.
Price approached VWMA quite soon after making a high
Price approached VWMA with Low Volume

And ultimately once it reached VWMA it bounced back thus providing a good scalping
opportunity.

So these were the major Connecting Dots that we want you to focus upon to trade intraday.
Now in order to ensure that you have understood the concepts well then try to answer the
following questions. If you have doubts then please revisit the daily recordings in order to have
greater clarity.

1. Will Dow Jones have an impact on the opening of our Indian Market Indices?
2. Will Dow Jones Futures impact intraday price movements in our Indian markets?
3. How do we analyse DOW?
4. Do we need to analyse only current price movement of DOW or also take into
consideration longer time period analysis as well?
5. What is the significance of VIX?
6. What do broader VIX levels indicate?
7. Can we know whether an uptrend is Bullish or a fake one on the basis of Intraday VIX
movement?
8. How to analyse Intraday VIX along with price movement?
9. What are broader RSI levels and what do they signify?
10. When should one think of entering a trade on the basis of RSI?
11. When should one book profits on the basis of RSI?
12. Can there be a retracement of price on the basis of RSI?
13. What does the Supertrend indicator signify?
14. What is VWAP Supertrend Crossover and can it be used for trading?
15. When can we go for Supertrend retracement trade and when not?
16. How to use PSAR for intraday trading?
17. What is the significance of 50k Volume Candles?
We hope that you will practice more and more on these aspects.
These 10 Dots will be the strong foundation of your trading career if you practise them well.
In the upcoming session we shall be learning more about them and how they turn out in real
markets.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 8: 31 Jan 2022
Hello everyone,

We hope that all of you must be enjoying the learnings and trading with more confidence based
upon our learnings.
Our next 3 sessions including todays will be focussed upon the Union Budget. This shall be an
important learning for all of you as the Union Budget is one of the important predefined events.
So the trading plan you should have for this event may be used for other events as well.

Other important events shall be

1. Union Elections
2. RBI Monetary Policy
3. FED Policy Decision

Today we shall see how to plan a trade for such events.

In order to plan for the event it will be wise if we look at historical data and analyse how market
has behaved in past Budget days
Here we have presented you data for the previous three budget events for both Nifty and bank
Nifty.
Kindly analyse what has been the general behaviour of the market
1. Pre Budget Day : Neutral/Range Bound
2. Budget Day : Trend
3. Post Budget Day : Neutral/Mildly Trend
Pre Budget Day
So what we see is that the Market has majorly remained range bound on day before the event.
The main reason for this is that players begin to build up their positions and do not make any
major moves and wait for the sentiment or budget announcements to play in their favour.

Budget Day:
● The Budget usually starts around 10.30
● All major announcements are done by 12.30-13.00 hrs
● Market remains sideways till that time
● Options Premiums are very high due to high IV levels.
● Market makes a decisive move based on the announcements made by the Finance
Minister either in Upside or downside direction.
● IV drops on both sides post the announcements and so do the Options premiums.
● However since the market trends in one direction we can go for naked option buying
despite drop in IV levels.
● Market usually trends in that particular direction till the end.
POST BUDGET DAY
This can be Neutral or trend continuation day.
However one thing can be sure that if one carries a position overnight then it would give one
good opportunity to exit the next day.
SO WHAT CAN BE THE ACTION PLAN FOR THE BUDGET EVENT

PRE BUDGET
● Expect no major up/down moves
● Scalping makes sense
● Open & High will prove to be useful concept
● Do not carry overnight positions even in selling as theta decay will be minimal due to
high IV values that will keep the premiums high.

BUDGET
● Wait for the Finance Minister to make major announcements that will usually be around
12.30-1.00 PM.
● Market shall be highly volatile before that so no sense in taking any positional trades.
● Wait for direction to emerge after announcements.
● Validate the price move with Open Interest data as sometimes there may be fake moves
to trigger stop losses.
● For Up move: Green Bars with Great volumes
Short Covering on the CE side & Short build up on PE side
● For Down move: Red Bars with Great volumes
Short Covering on the PE side & Short build up on CE side.

● Market will be usually trending and the trend will continue towards the end
 ● It makes sense to carry an overnight position if the market trends and closes at Day’s
high/Low.
● In trending markets RSI will not come down or cool off so keep that in mind.

Post Budget Day

If the Budget Day is trending then look for opportunities to book the carried positions as the
market will give a good opportunity once.

So with that said, make good plans for the budget event and trade accordingly.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 9: 01 Feb 2022
Budget Day
Hello Everyone,

Today it was a very interesting day on the cards as the Budget moves made the day very very
volatile.

We shall discuss how the day turned out to be and what could have been the trading
opportunities for the day.

Pre Budget Moves

As you can see the market was volatile during the period the budget was being announced.
The only trading opportunities were Scalping opportunities and that too with low quantity.

The market was very volatile during this period and it was expected, so the best trading
opportunity was scalping and that too with low quantity.
POST BUDGET ANNOUNCEMENT

There were two major expectations from POST BUDGET ANNOUNCEMENTS

1. Crash In IV levels- Lowering of Premiums on both CE & PE side
2. Possibility of Trend emergence based upon Sentiments.

Point No 1 was for sure to happen as Option Sellers would have taken into consideration the
Volatility in pricing the options while selling them and when the event got over the volatility
would have subsided and so would have been the IV.
Lets validate it through Active Strikes IV

So IV crash as expected happened.

Now the big question is could this have been used for trading?
The answer is YES. But the best way would have been Selling a Straddle or a Strangle.
The idea is to take advantage of drop in premiums due to the IV crash.

The best time to enter would have been around 12.30 when the budget got over.
Let's check the results

Short Straddle
Means we sell both CE and PE
Best Time: 12.30 when budget got over
Strike: Round strike near current spot price

38500 Straddle if taken around 12.30 was 1291. It made a low of 759 a drop of 532 points
despite sudden reversal.

The only reason was the IV crash and the market not trending.
Now let's check the Short Strangle

Short Strangle: Sell OTM CE & PE

Strikes: Preferable round strikes. 39000 CE and 38000 PE
TIme : 12.30 when budget announcements are over

Strangle at 12.30 was around 1838 and it made a low of 1363 a drop of 475 points despite a
sudden reversal.

All this was because of the IV crash.

Now let's check the second possibility
Possibility of Trend emergence based upon Sentiments.
The trend would emerge only if
● Budget is better or worse than the expectation. (Please stress upon Expectation and
not with actual announcements)
● The trend needs to be confirmed by Open Interest
● Though IV would be against us but a trend move would make up for IV crash.

But today the budget was a neutral one neither a good or a bad one as per Market expectations.

● The Price suddenly dropped once but only to trap retailers.

● This down move was not confirmed by Open Interest Change
So scalping and not being aggressive made sense.
Price made a sudden U turn from Previous day Low and trapped the retailers

In fact towards the end of day the Open Interest turned Bullish and there were trading
opportunities on the upside
So we see that though the day didn't turn out to be Trending but still if we stuck to our discipline
of analysing the market we could have still got our 1 % intraday target with ease.
The day was tough for newbies due to volatility but it was a great learning day as days like this
would emerge in future too and you must be ready for it.
We hope you enjoyed the process today.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 11: 08 Feb 2022
Hello Everyone,

We hope that you must be in a much better position to trade than you were prior to joining this
program. We are making best efforts to simplify the markets for you so you may become an
independent trader soon.
Now that we have covered the foundational topics from now on we shall be more focussed upon
the finer nuances of trading. In today's session we discussed following topics

1. Opening trade ideas

2. How to make an entry
3. Supertrend/VWAP Retracement trade
4. BTST strategy
5. Market analysis on basis of important support level

So let's discuss them again

1. Opening trade ideas

For opening trade we need to focus specifically upon three major factors
● Price Action of Previous Day
● Open Interest in relation to Price Action
● Dow/Global Markets

So if we start with previous day Price Action we need to look at following points
a. The dominant trend of the day
b. Price Closing with respect to VWAP
c. Price Closing with respect to Day’s HIgh/Low
So the price action clearly suggests that the day belonged to the Bears and they closed the Day
per their strength near the Days low.
So this clearly calls for a Bearish dominated opening tomorrow.
Any up move shall be resisted by these Bears.
But we do not advise you to trade just on the basis of Price action it has to be validated by Open
Interest too.

SO let's check Open Interest for Bank NIfty

The Futures Open Interest Clearly validated the dominance of the Bears as they showed their
strength throughout the day and towards the end they forced the Longs to wind up their position.

Now let us look at Options Open Interest of major strikes

38000
37800
37600

Just observe that we got a very strong Short Buildup on the CE side with Rise in OI much more
than 50 % and Drop in Price much more y=than desired 50 %, thus totally Bearish.

On the PE side we saw Long Build Up and Short Covering much more than stipulated 50%
marks, thus totally Bearish.

So now we can confidently say that Open Interest supplements the Price Action to show the
dominance of the Bears.
Now let us look at DOW

Also look at how DOW Futures behaved before our markets opened

So as we see that DOW was flat yesterday and today morning before our Markets opened , so
it's better we discount DOW today for our Morning trade.
So let's sum up

S.NO PARAMETER RESULT

1 PRICE ACTION STRONGLY BEARISH

2 OPEN INTEREST STRONGLY BEARISH

3 DOW NEUTRAL

NET RESULT BEARISH OPENING

Now with Opening Analysis done we know that we must have Bearish Outlook for the Day and
we can act in two ways

1. Flat/Gap Up Opening: Sell on Rise

2. Gap Down: Chase but with caution

Today we had a Gap up Opening and it called for Sell on Rise and it played out well.
This opening trade was more than enough to make more than 1 % return.
So this is how we should plan our Morning trades and execute to achieve our targets.

Now having learnt about Opening Trade lets move on to discuss second topic of the day
HOW TO MAKE ENTRY IN A TRADE

We shall discuss it with respect to 2 candle theory

Today we had a perfect 2 candle setup around 10 AM

Entry in 2 candle setup

After 2 confirming back to back red candles make an entry in the third candle keeping first
candle high as you stoploss.
Now the next question is how to deploy your capital in a trade. Here one important demarcation
is to be done between One Lot players and Multilot players.
One Lot Players have to precisely time their entries.
Multi lot players must average their position.
In a 2 candle setup the next entry is when price retraces back to Supertrend
1. for the first time
2. and preferably without Volume

A single lot player must enter only near the Supertrend as there is maximum chance of the price
to reverse.
Though the player may miss out many times as the price may revert back without touching the
Super Trend but this is how we need to protect the capital.

However a Multilot player can enter at various levels

So this is how a multi lot player can deploy his capital in a phased manner and make best out of
possibilities of market reversing from Supertrend levels.

Now having discussed the Lot wise entry let us move to Supertrend and VWAP retracement.

Supertrend and VWAP Retracement

These 2 trades are part of our 2 candle theory and are based on the premise that the dominant
trend may continue from the Supertrend or VWAP after testing it once.

There are two things that we need to take into consideration for these retracements trades
1. Trade only on first retracement and never on second retracement
2. Be cautious if price approaches ST/VWAP with Volume > 50 K
So we hope that our plan of action with regard to VWAP/Supertrend retracement shall be clear
now.
Now let move on to the next topic
BTST Trade

BTST stands for Buy Today Sell Tomorrow Trade. It is an overnight trade that means we shall
carry our positions overnight.
Since this will carry an inherent risk we must deploy it when we are 100 % sure. So we shall
learn about BTST trade by answering following questions
1. What is risk in BTST Trade
2. Can we deploy BTST trade everyday?
3. When should we deploy BTST Trade?
4. When should we execute the trade
What is risk in BTST Trade?
BTST trade involves carrying overnight positions. So if the DOW makes a negative move
or there is some domestic news factor BTST trade can go up in tosses.

Can we deploy BTST trade everyday?

NO. We must deploy BTST trade when we are pretty confident and that doesn't happen
everyday.

When should we deploy BTST Trade?

We should deploy BTST trade when the data is on our side. We need to analyse 2 data
sets precisely
1. Price Action
2. Open Interest

Price Action
● There must be a dominant Trend during the Previous Day.
● Price must close near Days High /Low

Open Interest
● Futures Open Interest must also close near Days High or Days Low.
● Options Open Interest must supplement the Dominant Trend of Previous Day

BEST CASE SCENARIO

● There must be a dominant Trend during the Previous Day.
 ● Price must close near Days High /Low
● Futures Open Interest must also close near Days High (LONG
BUILDUP/SHORTBUILDUP).
● Options Open Interest must supplement the Dominant Trend of Previous Day

So these factors must be there for deployment of BTST Trade

Under such conditions there is a possibility of Gap Up Opening the next day and that is what
exactly happened.
 5. When should we execute the trade
The BTST trade must be executed after 3.20 PM.
Now let's discuss the last topic of the day
Market analysis on basis of important support level

Today was a very special day as we saw Volatility at its best.

● The First half belonged to the Bears totally
● Mid Half was dominated by the Bulls who forced the Shorts to Cover their position
● The Last Half saw a tussle between the BUlls and Bears and that was eventually won by
the Bulls.

The main reason for today's Volatility was the battle going on between Big Players and it was
regarding Important Support Level of Budget Day
The Bears wanted to make a closing below this LOW whereas the Bulls wanted to protect this
level and that is why we saw such swings in the day.
The Bulls were favoured today by the DOW moves during market hours and they were able to
defend the level.
Just notice the similarity in between the moves and see how DOW favoured Bank Nifty
This even provided us with a trading opportunity as we know that after battle around VWAP
wherever Volumes pick up we must go with the momentum.
Now with the Bulls successfully defending the important support level it will be a very interesting
game tomorrow.

We shall analyse the Market tomorrow in Live Market but we would request you to make an
analysis for Tomorrow based upon our learnings.

Regards
Team OI Pulse
 Synopsis
Mentoring Session 7, Day 12: 09 Feb 2022
Hello Everyone,

We hope that you are fine tuning yourself with whatever you have learnt till date. The key to
success for trading will be practice and lots of practice. So keep practising whatever you have
learnt in Live Market.
In today's synopsis we shall be covering following topics

1. Opening Trade Ideas

2. Strike Selection
3. Discussion on Stop loss
4. Discussion on Qty Management
5. Expiry Day Analysis

So let begin

OPENING TRADE IDEAS

Today it was a perfect day for going Long at Opening and Buying on every Dip.

Let's analyse the reasons why we should have adopted this methodology in the morning. As
discussed we shall be focusing on following points
● Price Action
● Open Interest Analysis
● Dow Jones/Global Markets
Price Action
There are 2 main Bullish cues from Yesterday's Price Action

1. Bulls defended the Budget Day Low Yesterday

 2. Bulls pulled the price towards upper side near closing giving sufficient hint that they
would like a Gap Up opening tomorrow

These two price actions hint that Bulls have taken control from the market hitherto being
dominated by the Bears in recent few days.
But we shall validate the price action with other factors namely OI interpretation and Global
Markets.
OPEN INTEREST ANALYSIS
Lets analyse 38000 CE and PE first the ATM strikes

At first instance you will see that both the sides have Short Build up and this is inconclusive but
we need to dig a little deeper.
38000 CE witnessed significant OI increase but who dominated this Buyers or Sellers?

If Sellers dominated then Price should close near Days Low and if it is dominated by
Buyers then price should close near days high.
It closed at 326 that is closer to the high of 478.95, so this shows that BUyers have an edge.

Now similarly if we see PE data there is Short Buildup and Price closed near the Days LOW
indicating a clear Short buildup.
So OI data is clearly Bullish though not strong but moderately Bullish we can say.
Similar stories were conveyed by other strikes as well. Please verify them on your own for
practice.
DOW JONES / GLOBAL MARKETS

It was Bullish Yesterday and a 1 % move is significant.

Now lets see how US 30 Futures was behaving in the morning before our markets opened
So with the Dow Jones Index being positive yesterday night and DOW Futures also positive in
the morning before our markets opened is HIGHLY BULLISH.

So let's sum up everything for our opening trades

 S.no Parameter Result

1 Price Action BULLISH

2 Open Interest Analysis BULLISH

3 Dow Jones/Global Markets BULLISH

NET ANALYSIS BULLISH

So it made perfect sense to go Bullish at opening. Our action plan would have been as follows
1. Flat/Slight Gap up Opening: Buy at opening and buy on dips
2. Gap up Opening : Buy on Dips
3. Gap Down Opening : Buy at Opening

SO today we had a Slight Gap up and we should have gone for Buying at opening or Buy at
Dips strategy to make our 1 % profit and it gave very good results.
We suggest you make an analysis of this type everyday to find out if there is any opportunity at
opening. These days will be very good for scalping and achieving the results.
These days it is very difficult to make money in intraday moves as Market Movers move the
market in the morning, keep it sideways during the entire day and then make some movement
at the end of the day. SO it is better to make money at opening when there is sufficient volatility
and liquidity.

STRIKE SELECTION

For strike selection we expect you to know the concept of Intrinsic Value and Extrinsic Value.
Option Premium=Intrinsic Value + Extrinsic Value

For OTM options Intrinsic Value=0 (always)

For ITM options Intrinsic Value=|Spot -Strike Price| ‘

The importance of Extrinsic Value that we refer to as “Premium” is very high for Options buyers.

The sellers have complete control over extrinsic value.

So as a buyer you should focus upon only those strikes that have some INTRINSIC VALUE as
this will appreciate when the Future moves in your direction.

Extrinsic Value may or may not appreciate but Intrinsic Value will always appreciate so

As a buyer, I always look for ITM options.

As a seller looks for OTM options.

Next question is how Deep ITM options should we go for.

We must go for Options with LTP till RS 500.

The reason for this is beyond Rs 500 options the slippage and liquidity would be an issue and
you will not get desired scalping results.

So always go for ITM options till Rs 500. This is the key. Also use Bank NIfty SPOT and
not futures for deciding ITM/OTM options.
DISCUSSION ON STOP LOSS

Yesterday we discussed how to decide Stop Loss based on Futures for a 2 candle setup. Today
we will dive deeper into it and see how we can actually find SL for an option.

Stop Loss based on Future Price

Now this is based upon Futures . Now if you want specifically for Options then we suggest you
to open Options Price chart simultaneously and find stop loss.

As an example let us choose 38000 CE as ITM strike as an example for this 2 candle stoploss
So this is how you may determine exact Stop Loss on Options premiums.
DISCUSSION ON QTY MANAGEMENT

Yesterday we discussed how to deploy capital on retracement trades in a phased manner.

Today we will learn how to deploy QTY on activation of 2 candle setup.

In the 2 candle setup the price may move up immediately in the third candle so we need to
average our position even on the higher side of this setup in addition to the lower side.

Our qty management on activation of 2 candle set up should be as follows

So we need to do pyramiding in the above manner as per one's capital.
Expiry Day Analysis

So with the basics first, this feature may be accessed in OI pulse under “Options” menu. It shall
look something like this

So we have data for Calls & Puts of a particular strike for the entire previous week. The tabular
data records Open,High,Low & Close of price along with changes in OI of that particular strike.

Now if we analyse this data properly then we can decode the Market Sentiment. By decoding
this Market Sentiment we can
● Come to a conclusion who is likely to dominate the next day.
● How the opening is going to be.

Though we would state it at the very onset that this data analysis needs to be correlated with
World Markets to actually plan a trade. The two must give similar direction rather than
conflicting signals. Thus with this data along with World Market data we can make plans for
Opening Trade and develop a general overview. So I guess you realise the importance of this
feature.

Now we must structure the process of learning this feature. We shall do so by answering
following questions

1. Which Strikes do we need to analyse?

2. Do we need to analyse the Call side or Put side of a particular strike?
 3. How old data should we take into consideration?
4. How to know whether a buyer or a seller is dominating a particular side ?
5. If we know who is dominating, can we make a plan for morning trade?
6. How to know whether there is Long Buildup(LU), short build up(SB),Long unwinding(LU)
and Short Covering(SC) in this data set?
7. How to know whether a particular action (LB/SB/SC/LU) is clearly dominating a given
strike?
8. How to interpret weak LB/SB/LU/SC?
9. How to read data on both sides of strike price (CE+PE) together and make some
inference?
10. Should I look at this data as an Options Buyer or seller?

We shall be applying the knowledge to analyse a few examples within these questions.

So Let’s begin
1. Which Strikes do we need to analyse?
● Always remember that the Market is moved by those people who pump in the
maximum amount of money. Market movers pump in the money in certain
strikes.We can start with the Option chain and look for strikes where the OI and
change in OI is maximum. Usually it would be ATM strikes and few strikes
around it. Since these strikes have maximum activity they are going to be the
ones where maximum action is going to happen.
● Also maximum action shall be happening in round number strikes in multiple of
500 for Bank Nifty (e.g 30000,30500,31000,35000,35500 etc) and 100 for Nifty
e.g 15000,15100,15400 etc.
OI Pulse gives you the flexibility to choose the strikes as per you wish. Just
select the strikes based using “Change Strike Feature”
2. Do we need to analyse the Call side or Put side of a particular strike?
While analysing OI data we need to look at both the sides of Strike Price. That means
we need to analyse the Call side as well as the Put side to make some conclusion. Any
analysis based on just the Call or Put side shall be incomplete.

3. How old data should we take into consideration?

While analysing data ignore any data for a particular day when OI is around 1,00,000.
These are low volumes and must be ignored.

4. How to know whether a buyer or a seller is dominating a particular side ?

The answer to this question lies in analysing Change in OI along with variation in prices
from Open to Close and through HIgh & Low of the day. So we need to analyse how the
OI of a particular side of a strike price changed as the day progressed and premium
moved from Open to Low and then high before closing.
 So do remember we need to analyse Change in OI with respect to change in Price
through Open,Low, High and Close.

As an example consider this

● On 7th June premium of 35000 CE closed at 646.45 and OI was 3,91,375.

● On 8th june Premium Opened at 583, couldn't scale higher and then closed near Day’s
Low of 278 at 309. So the price dropped by 52%.
● At the same time OI also increased to 8,45,400 from 3,91,375.
● Who do you think is responsible for the increase in OI?

Definitely it's the seller as he is the one who gained most.

➢ Sellers started writing fresh contracts at the open when price was 583 and they
continued it throughout the day.
➢ At the end of day they are still confident of premiums going further lower thus
they did not exit their position and are carrying forward.
➢ So the seller of 35000 CE is bearish about the market.

This scenario of rise in OI along with fall in price is known as ShortBuildup

So whenever Short Build up i.e Rise in OI along with fall in price occurs Sellers are the
ones who dominate the strike.

Now consider one more example

 ● On 8th June OI was 1,12,025 and Price closed at 193.
● Next day, the price opened lower at 175 and went to a low of 120 but then climbed
upwards till 390 and then closed near day’s high at 302.
● Along with this the OI increased by 64% to 1,83,800.

Now what do you think happened today?

➢ Today the buyers came in and bought 34500 PE from lower levels of 120.
➢ At the end of day they are still optimistic of prices going higher so they are still holding
their positions.
➢ Thus this data suggests that the buyer of this PE option is Bearish about the market.

This scenario of rise in OI along with rise in price is known as Long Buildup
So whenever Long Build up i.e Rise in OI along with rise in price occurs Buyers are the
ones who dominate the strike.

Thus to know who is dominating, buyer or seller, we need to carry out the above
exercise at most active strikes i.e Strikes with Max OI or max change in OI.
5. If we know who is dominating, can we make a plan for morning trade?
This analysis helps us know the mindset of Option Buyers and sellers.
However please remember that knowing just the mindset is not enough to make a plan
for trade. For trading we need to know following

➢ Mindset of Buyers and sellers on both the sides (Call & Put) of active strikes.
➢ Strength or Conviction of Buyers and sellers
➢ World Markets & Domestic News

So in short, knowing who is dominating on one side is not enough to go for a trade. We
need to extract complete information from both the sides and correlate it with World
Markets before planning a trade.

6. How to know whether there is Long Buildup(LU), short build up(SB), Long
unwinding(LU) and Short Covering(SC) in this data set?

OI Pulse would help you to know what happened in a particular strike.

It would be presented as OI Interpretation.

We want you to realise that during the day all the aspects go hand in hand i.e
SB,LB,SC,LU would be happening all together as someone would be buying and
 someone would be selling. But there would be one action that would dominate the day
and that can be known by comparing change in OI along with change in price through
Open,HIgh,Low & Close.

7. How to know whether a particular action (LB/SB/SC/LU) is clearly dominating a

given strike?
Whenever there is Price change and OI change in excess of 50% then the following
table may be used to classify any action as a dominant action.

Long Build Short Long Short

Up Buildup Unwinding Covering

Change in > 50% <- 50% <- 50% > 50%

Price (increase) (decrease) (decrease) (increase)

Change in OI > 50% > 50% <- 50% <- 50%

(increase) (increase) (decrease) (decrease)

So the idea is to have a significant change in OI and price. We have kept the threshold
of 50% based on experience.
So if OI Pulse data shows you any action as per this table then you can straight away
assume the dominant action as LB,SB,LU or SC as the case may be.
If the changes are not as per this threshold then you need to dive a bit deeper.
*NOTE: We have used the 50% threshold. You would easily find SB subscribing to these
figures. However Long Unwinding and Short Covering may not always subscribe to
these figures. So in that case you can consider the figures on a relative basis. Though
intraday the 50% figures work magically well for all options.
These crystal clear data you will get only a few times. For the majority of time you will get
figures that do not subscribe to these 50% norms.
8. How to interpret mixed LB/SB/LU/SC?
As mentioned earlier, for the majority of the time the data will be mixed and not suggest
clear dominance of one action. Though OI Pulse would suggest the dominant action but
in such situations you need to consider all the possibilities. This can be done by
considering the intraday variation in premiums of the strike price taken into
consideration.

Let’s consider following example

In the above example on 15 June the OI was 6,38,300 and price closed at 191.
● The next day we had a bearish opening and price opened at 234.
● The Price closed at 269 after making an intraday high of 350 & low of 133.
● Now there are many possibilities if you look at this data
When price reached 350
➢ There would have been some PE sellers who would have
unwinded/covered their position fearing that if the prices go further
higher their loss may go out of control. Thus Short Covering.
➢ There must be some PE sellers who would have tried to build fresh
short positions thinking the premium would go down.Thus Short
Buildup.
➢ There would have been some PE buyers who unwinded their position
thinking that Premium would not go much higher. Thus Long Unwinding.
 Similarly when the price was at 133
➢ There must have been some PE buyers who thought that the premium
may go higher and would have created new long positions. Thus Long
buildup.
So overall all four occur simultaneously but to know which one dominated we need to
look at the final change in price along with intraday variation and final change in OI.

Since in this case there was Drop in OI the action on this strike was dominated by PE
sellers who unwinded/covered their position fearing further loss and some PE buyers
who unwinded their positions to book their profits.
Since the price also came down it is clear that the action of PE sellers unwinding or
covering their position was maximum. Thus it was predominantly Short Covering.
Now since the drop in OI is quite huge and price also dropped significantly we can
assume that there was massive short covering. However do remember that since the
price jumped significantly from lower levels till the close i.e from 133 to 269 (almost
100% jump) there was some long build up too at lower levels.
OI Pulse would show you the predominant action. However remember that there are
other things also happening simultaneously.
 So OI Pulse will show you the dominant action but you need to analyse the variations in
price and OI to know all the possibilities. Sometimes the OI action will be crystal clear
with one action clearly dominating but most of the times the data will be a mixed one and
you need to go a bit deeper.
Now if this thing is getting a bit complex then we suggest you go through the above text
once again.

Now moving ahead, to decode the market sentiment you need to analyse both the sides
of a strike price i.e Call side and Put side together.

9. How to read data on both sides of strike price (CE+PE) together and make some
inference?
We will understand this by an example. Just to repeat we must consider ATM strikes or
strikes that have undergone major OI change.

Let's analyse data of 16th June and try to find some inferences for the next day.
On 16th June Bank Nifty closed at 35003. So as per our convention we shall analyse
35000 strike, both Call and Put together.
On 35000 CE we had a dominant Short buildup as we got 50% drop in price and 115%
rise in OI, so we can safely assume that Sellers dominated 35000 CE.

On 35000 PE we have a non-dominant Long Buildup as 50% figures were missing. So

let's analyse it in a bit detail.
35000 PE opened at 159 and made a high of 220.
So at 220
➢ There must be some Sellers who would have created fresh shorts. They were
able to bring the price till 160 at time of closing. So a drop of 60 points(22%).

However 35000 PE also made a low of 80 and then closed at 160. So at 80

➢ There must be some Longs who would have bought at a lower level. They were
able to take the price higher till 160 from 80 a jump of 100% from lower level.

Overall the OI has increased. So it is either the shorts at HIgher level or Longs at
lower level who dominated the strike.

➢ Since the price closed above Yesterday’s closing price, Longs at lower levels
seem to be more dominating this strike. Had shorts dominated they would have
closed at the price below yesterday’s closing price.
 ➢ Also Longs have already gained 100% return from 80 and they are still holding
the positions as we didn't see a drop in OI.

So the Longs are dominant on the 35000 PE side, though we would have been more
confident had we achieved figures of 50%.

➢ So we have Sellers on the Call side and buyers on the Put side.
➢ Premium on the call side (190) is higher than the premium on the put side(155).
➢ OI on Call side (20 lakhs) is higher than OI on Put side (16.3 lakhs)

The sentiment is Bearish.

So tomorrow Morning if I'm a seller then I would go for the side that has
● More sellers than buyers
● Higher Premium

So it would be Call side. And if you are a buyer you have to be on the PE side.
So Sell CE and buy PE tomorrow morning.

If the world market has any bearish element then go for PE in morning trade.

So that's how we need to analyse Call and Put side together to make some conclusion.

Special note on Long Unwinding

Long Unwinding means that buyers are booking their profits thus they are not interested
in taking the market in a particular direction. It is a window of opportunity for Option
sellers to take control.
Let's consider this through an example
So in this example we see that PE buyers are in no mood to take the market lower as
they booked their profits and unwinded their positions by 14th evening. On the other
hand there is mixed data on the Call side. Although it shows Shortbuildup, there is
 buying of Call options happening at lower levels as price closed more towards day’s
high.
So it makes sense to be on the call side as downside movement is unlikely.
Just observe what happened the next day.
As PE buyers showed weakness, PE sellers attacked that side and started writing.
The CE buyers benefited from this as the CE premiums increased the next day.
So pay special emphasis on Long Unwinding days as it is an opportunity for Option
sellers.

10. Should I look at this data as an Options Buyer or seller?

The best way to look at this data is through a reverse role. So if you are a seller then see
the data as a buyer and if you are an options buyer then see this data through the lens
of an Options seller. However since Option sellers are the ones who dominate the
market more we encourage you to think through an Option seller’s perspective.

If you can understand the concept behind all this exercise then your trading shall be at another
level.

Tomorrow is an expiry day and we would request you to do the OI analysis in the way we have
discussed today on your own and try to find out conclusions for yourself.

Regards

Team OI Pulse
 Synopsis
Mentoring Session 7, Day 13: 10 Feb 2022
Hello Everyone,

Today it was a very special day as it consisted of two events

1. RBI Policy Rate Day
2. Weekly Expiry

RBI Policy was a very important event as there were some expectations of a rate hike in the
news. So this factor was very important for analysing the day.

In today's synopsis we shall cover following topics

1. Morning Trade
2. How to deal with Event
3. Subsequent trades

So let’s begin

a. Morning Trade
Now you know how to do analysis for a Morning Trade. We again do it for you
1. Previous Day Price Action
2. Open Interest Analysis
3. Global Markets

So let's start with the analysis

Previous Day Price Action

2. OPEN INTEREST ANALYSIS

FUTURE OPEN INTEREST

Options Open Interest Analysis
Since the price closed somewhere around 38700 we shall first analyse 38700

If we look at 38700 CE then it is clearly dominated by the Bulls and 38700 PE is totally in the
hands of Bears. This is attributed to following facts
1. 50 % change in price and 50 % change in OI achieved
2. Price closed near to its low in 38700 PE and near its high in 38700 CE
3. CHange in OI more than 1,00,000

Now let us look at nearby strikes too

These PE strikes should have had significant PE writing and change in prices/OI more than
50% for absolute Bullishness but it didn't happen.
Now let look at OTM PE’s

Well these had some major action

1. Change in OI more than 50 %
2. Change in Price more than 50 %
3. OI change more than 1,00,000

So this is some major PE writing , denotes Bullishness and says that these levels will be
protected if price drops to these levels.

Now let's check Bullishness on CE side.

If there is absolute Bullishness then CE writers must cover their position or Buyers should just
flock in to buy more and more CE options on OTM side now lets see what happened
So we see that action is missing on the OTM CE side and this tapers the Bullishness given by
Price Action.
Now let's check the ITM side too

So we see that there is some Bullish action on the ITM side suggesting that these levels will be
protected.
So Overall Options OI Data Analysis suggest Moderate Bullishness and Support if price
drops to 38500/600 levels in the Morning tomorrow.

Now lets look at third factor

DOW JONES

Dow had a Bullish impact yesterday night and this will be positive for our markets given it
sustains this Gap before opening of our markets.
So let's check US30 Futures before our markets opened.
So if the DOW Jones spot made a gain Yesterday evening it got neutralised a bit this morning.
So DOW JOnes suggest only Moderate Bullishness at this juncture.
So let's summarise our findings

S.no Parameter Result

1 Price Action Absolute Bullishness

2 Futures Open Interest Bullishness

3 Options Open Interest Moderate Bullishness

4 DOW Moderate Bullishness

NET Result Moderate Bullishness

So we should be Bullish but Moderately Bullish for our Opening Trade.

SO we can have following actions planned for the opening trade

1. Gap Up Opening: Don't chase upside, wait for pulls to happen

2. Flat Opening: Buy CE/Buy on Dips
3. Gap Down: Buy CE

So today we had a Gap Up opening and it made perfect sense to buy at lower levels
So this was the plan of action for the Morning and you would have made good gains in scalping
this trade.

Now we knew that today was an event day and it made perfect sense to wait till the event got
over. Lets see how the event and Bank Nifty turned out.
RBI POLICY AND BANK NIFTY

As we have stated earlier, we must wait for the event to get over and then trade as there will be
a lot of Volatility in the market. So let us see what happened today.
The main event was the announcement on Rate Hike.

The announcement came around 10.07 AM

And Bank Nifty jumped

Now if you are a risky/established trader then you could have jumped into the trade and scalped
straight away but if you are a newbie then it is better to wait a while as there would be too much
volatility and then enter once the event is over.

So we see that it is better to enter once the volatility dies down and there is clear direction.

Then there were many opportunities throughout the day for buy on dips which would have easily
made you 1% target.
By this time the daily target could easily be done.
So what we see is that the market easily gives you enough opportunities to make your 1 %
intraday target. You just need to spot the correct opportunities dn attack to achieve your target.
The rest of the day was totally sideways and didn't give enough opportunities but that's perfectly
fine.

We hope that you enjoyed the session and learnt new things from the event.
In coming days we shall further fine tune your learnings to make you ready as an independent
trader. So stay tuned

Regards
Team OI Pulse