This is the exact strategy I used to spot the big move in Sensex 84400 CE from 100 to 263:
1. When the market is in a strong trend before weekly expiry, on the weekly expiry day trend can reverse sharply and trap traders on the wrong side.
2. So, on weekly expiry, I look at three things: a. Market Structure b. Volume data c. Open interest change (of both current and next week for short-term trend reversals)
3. Sensex broke the previous day’s low, and a lot of traders expected the downtrend to continue.
4. But as per the OI analysis, next week, heavy put writing was seen, but hardly any call writing.
5. Apart from low-volume selling as per order flow, this indicated that there was a high chance of market reversal.
I chose 84400 CE as that was the nearest strike to the day’s high, and we saw heavy writing in it of the current expiry. In case of an up move, a lot of buyers would get trapped in it and exit, triggering a short covering move.
Credit – Abhishek KV