In this post we will take an example of a strike price and try to analyze that in detail so that you have a defined approach of looking at things for any given strike.
Before we proceed forward here are few principles on which the analysis is made.
- Biggies are expected to enter into positions earlier than anyone else.
- They are expected to defend their entries on retests.
- Biggies are flexible at every minute and rigid at the same time > this statement is a bit tricky as they do things to accommodate people’s actions and that’s why they are flexible to change sides quickly if crowd shifts from one side to another, at the same time if the crowd keep on waiting they will be so rigid to stick on the same side.
Hope the above assumptions are clear as these are very basic facts on how biggies operate.
Too much of theory huh?
Now let’s get to practical understanding through an example from 17600PE of today.
To start with see below the full day’s data for reference. you can also check this on the website if you have issues accessing it here.
Now let’s get to the analysis.
Step 1 : Spot the earliest entrant irrespective of the direction. usually the “earliest entrant” is always the one with a favourable market action after his entry which makes him a successful early entrant.
In the above image 481k at 9:20-9:30 Am is that early entrant, finding the one with the highest change in OI is important point to keep in mind.
Once you spot it make these things in your mind clear so that you better understand how this position is performing in the prevailing market environment.
- If this Qty is a sell he should work towards keeping the price of the option below the high of this interval i.e. 184 for the rest of the day and defend when it tries to go above.
- If this Qty is a buy he should do two things i.e. defend whenever it tries to go below the low of this interval range of 164-184 and also make an effort to push it above 184 and get acceptance there.
These two points will be unaswered by price action on what’s really happening w.r.t these early entrants entry levels.
Once you know the answer whether he’s a buy/sell you try and clone him to make profit alongside him on either side.
A very important note when seeing the price action is to observe the action at edges of this price range of 164-184 which will tell you more about the behaviour of the option.
Let’s say in this case the option didn’t mind to trade well below 164 which is an which is usually expected to be defended if this 481k was a buyer.
Step 2: Keep monitoring the strike for further entries which are more in size or equal quantities similar to the earlier entrants but at a price which is at much disadvantageous position than the earlier entrants.
Once you spot these further entrants expect spikes to take out these late folks before price moves back in the same downward direction especially if price is consolidating in the price range of these entrants for more time.
In the image above see the period from 10:30-11:10 where the OI increased from 1.4 mn to 2.2 mn i.e. 800k writers which is comparable to opening 800k early guys qty but the price is not making that move down but getting consolidated and gaining strength. Usually these scenarios there is a spike that comes atleast some of these late folks as you can see the spike that has come at 13:40 -13:50 which has retested just above the early entrants range of 164-184 i.e. high of 193 and then fell back later in the day.
There is one more possibility also here that these further entrants are also biggies and they usually push the price lower without much consolidation in that scenario the highest price of the range of prices of these further entrant becomes an important ref for the rest of the day.
Step 3 : Consolidation in price and OI exits – usually a sign of big guys exiting from their earliest entered quantity and need to be careful from that point for a reversal in the same strike.
Otherwise you would normally see them continue their positions overnight/take exits near market closing.
In the current scenario they preferred to exit it near the close as you can see in the image above, if they continue their positions overnight then these references arrived at above are valid for next day as well.
Based on the example above you can note these things about biggies.
- They take the earliest entry
- They don’t allow crowd to come along their side with a disadvantageous price entry as they give spikes to take people out.
- They test people at the edges multiple times in a day except for clean trending day which are not an everyday affair.
- They don’t mind closing positions at any point of time if crowd is getting on to their side – see the closing exits as reference but this can happen in between the day also.