Vijay L Bhambwani's Ticker: All eyes on expiry
Retail leverage in silver exchange-traded funds has surged despite falling prices, creating volatility risks.
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Dear reader,
Last week, I wrote that traders should be prepared for higher volatility, as the truncated, holiday-shortened week was expected to witness larger price swings on low volume. That hypothesis was validated, as price action followed the expected lines.
Last week, I also wrote about the extreme greed displayed by retail investors-traders where bullion (especially silver) was concerned. Leveraged buying (buying with borrowed funds under the margin funding scheme - MTF) shot up in spite of price declines. Regarding Nippon Silver Bees (the oldest and largest bullion exchange-traded fund house), it alone saw borrowed money-fueled buying in silver reach 42,489 kilograms as of 23 October 2025. In terms of the rise in MTF borrowing, Nippon Silver Bees saw a 5.88% gain in 5 trading sessions, an 85.37% gain in 10 trading sessions, a 196.57% gain in 20 trading sessions, and a 368.54% gain in 30 trading sessions. And this is just one ETF! Read my earlier pieces on this subject here and here.
What makes this data noteworthy is that Nippon Silver Bees ended trade on Friday, 24 October, at a discount of ₹7,131 per kilo relative to MCX prompt-month futures. This translates to a 4.88% discount, which is way above the mean levels. This sows the seeds of a potential problem. Since the prices of commodities are derived from overseas markets, with MCX merely converting US dollar quotes into rupees based on the prevailing currency peg, futures may not exhibit as much volatility as ETFs. Assuming an interest rate of 14-18% per annum is charged under the MTF window, any price decline in silver can trigger a crowded exit from the silver market. That means the local discount in ETFs may escalate with little or no change in spot and/or futures prices. This puts leveraged buyers on the MTF route at a significant disadvantage in terms of volatility risk. Should this borrowing grow exponentially and/or silver prices fall rapidly, the panic can spread to equities too.
This week, markets may open with some optimism as rumours of an imminent trade deal with the US are circulating. Only concrete outcomes will convince bulls to commit fresh funds. Note how markets sold off on Friday, despite news of a possible trade deal. This shows a pull-push effect in the markets. That means higher volatility is here to stay, at least for now. Again, banking and financial sector stocks will continue to receive above-average attention due to their significant share of 36.47%, which is higher than the combined share of the next four sectors.
In the commodities markets, oil and gas are likely to witness profit-taking on rallies, as my hypothesis that the energy market is adequately supplied remains in place. Gas prices “appear" to have rallied, but it is really the steep cost of carry (financing premium) which is routine in the winter season. Oil prices have risen on concerns about supply chain disruptions following sanctions on Russian oil companies. These fears are likely to be short-lived.
Bullion may force short-term traders to take antacids, especially if they are trading on leveraged (borrowed) funds. I suggest that my readers hold tight to their existing physical holdings and look beyond 2025 or further. The reasons for buying bullion remain in place. As I have said in my recent pieces, avoid fear of missing out (Fomo) based on fresh buying. If you have been reading my column long enough, you have a significantly lower holding cost of bullion. Enjoy that advantage.
Industrial metals may experience a routine month-end short-covering-based price rise, which could boost the stocks of metal mining companies. In the event that the markets weaken, these stocks may receive a temporary cushion at lower levels.
Fixed-income investors should continue to keep their powder dry, expecting better yields. Being an expiry week, volatility can be higher as traders are likely to be focused on squaring up and rolling over their trades. Price discovery will begin in earnest from Wednesday.
Continue to trade with stop losses and tail risk hedges in place.
A tutorial video on tail risk (Hacienda) hedges is here.
Rear View Mirror
Let us assess what happened last week so we can gauge what to expect in the coming week.
The fall was led by the Bank Nifty, whereas the broad-based Nifty brought up the rear. The dollar index (DXY) rose, triggering profit-taking in bullion as safe-haven buying tapered off in anticipation of a peace deal in Eastern Europe. Gas rose due to the seasonal cost of carry, whereas oil rose following the sanctioning of Russian oil companies.
The rupee gained versus the dollar on hopes of a trade deal with the US in the near future. That cushioned declines in Indian markets. Indian 10-year sovereign bond yields rose, which dragged the Bank Nifty lower. The National Stock Exchange (NSE) market capitalisation rose mildly, which indicates the broader markets were mildly optimistic. Market-wide position limits (MWPL) fell in a routine way ahead of expiry.
US headline indices rose, providing tailwinds to our markets.
Retail risk appetite – I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders: where are they deploying their money? I measure the percentage of turnover contributed by lower- and higher-risk instruments.
If they trade more of futures, which require sizable capital, their risk appetite is higher. Within the futures space, index futures tend to be less volatile than stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.
Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week) –
The contribution to turnover in the capital-intensive futures segment rose, which is partially due to the rollover process. Traders close their trades in the expiring month and initiate the same in the next month, resulting in dual turnover.
In the relatively lower-risk and capital-intensive options segment, turnover declined in the lowest-risk derivatives product—index options. Stock options experienced higher turnover, which is partly due to the rollover of trades.
Overall risk appetite was higher, as traders preferred to roll over their open trades.
Matryoshka Analysis
Let us peel layer after layer of statistical data to arrive at the core message of the markets.
The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator calculates the ratio of rising to falling stocks. As long as the number of gaining stocks exceeds the number of losers, bulls are dominant. This metric is a gauge of the risk appetite of one marshmallow traders. These are pure intraday traders.
The Nifty clocked smaller week-on-week gains at 0.33% (prior week 1.68%), but the advance-decline ratio rose to 1.04 (prior week 1.01). Which means there were 104 gaining stocks for every 100 losing stocks. Intraday buying conviction was higher. This ratio must remain above 1.0 on all trading sessions to indicate bullish dominance.
A tutorial video on the Marshmallow theory in trading is here.
The second chart I share is the market-wide position limits. This measures the amount of exposure utilized by traders in the derivatives (F&O) space as a component of the total exposure allowed by the regulator. This metric gauges the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session/s.
MWPL eased routinely pre-expiry after reaching new highs, as the method of computing this metric has been tweaked as of 1 October. Even by conventional metrics, trader leverage has increased, which brings with it higher volatility.
We need to watch the post-expiry low as we are now in uncharted waters after the MWPL computing method was tweaked.
A dedicated tutorial video on how to interpret MWPL data in more ways than one is available here.
The third chart I share is my in-house indicator ‘impetus.’ It measures the force in any price move. Last week, both indices witnessed selling on rallies, and the impetus rose sharply, as the chart shows. That shows unwinding pressure was fairly high.
Ideally, the price and impetus should rise in unison for bulls to enjoy a clear advantage. This is a small red flag. We can give the benefit of the doubt to bulls as the week was short, and trader participation may have been lower due to festivities.
In the absence of clarity on this front, we will rely more on the price itself this week.
The final chart I share is my in-house indicator ‘LWTD.’ It computes lift, weight, thrust and drag encountered by any security. These are four forces that any powered aircraft faces during flight, so applying them to traded securities helps a trader estimate prevalent sentiment.
While the Nifty has logged smaller week-on-week gains, the LWTD has risen from -0.50 in the prior week to 0.09 last week. That raises the probability of relatively improved buying support on declines.
A tutorial video on interpreting the LWTD indicator is here.
Nifty's Verdict
Last week, I wrote about the 25,550 level above which the Nifty must trade if bulls were to have an upper hand. That condition was met. However, the candle made last week is an inverted hammer candle. This occurs when the market opens at a level, attempts to rally, and encounters selling pressure, closing at the lower end of the range. This indicates selling pressure.
Follow-up action assumes extreme importance. Should bulls push the index above the weekly high of 26,104 convincingly, it would indicate that selling pressure has been absorbed and the upthrust can resume. The 25,550 remains the threshold that bulls must defend in case of declines. The price is comfortably above its 25-week moving average, so the medium-term outlook is currently optimistic.
On the flip side, sustained trade below 25,718 can open the possibilities of further downsides.
Your call to action – Only sustained trade above the 26,104 level confirms the possibility of a fresh rally. In the event of declines, the 25,550 level needs to be defended.
Last week, I estimated ranges between 58,850 – 56,575 and 26,200 – 25,225 on the Bank Nifty and Nifty, respectively. Both indices traded within their specified ranges.
This week, I estimate ranges between 58,875 – 56,500 and 26,300 – 25,300 on the Bank Nifty and Nifty, respectively.
Have a profitable week.
Vijay L. Bhambwani
Vijay is the CEO of www.Bsplindia.com, a proprietary trading firm. He tweets at @vijaybhambwani.
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