Lookback Archive / F&O Studies
Lookback: Bank Nifty’s May 6 weekly expiry, how options positions shifted
Lookback: Bank Nifty’s May 6 weekly expiry , how options positions shifted
By Aditya Sharma
1. Prelude , the buildup to the May 6 expiry
The fortnight that led to the May 6 weekly expiry had been characterised by a steady accumulation of open interest (OI) in Bank Nifty’s near‑the‑money strikes. From 15 April 2025 through 2 May, the index traded within a tight corridor of 49,800, 50,700, while OI in the 51,000 call series climbed from 1.12 million contracts on 15 April to 1.58 million contracts by 4 May , a 41 per cent rise, according to NSE data (15 Apr‑4 May, NSE).
Simultaneously, the put side showed a modest increase. OI in the 50,000 put series moved from 0.94 million to 1.02 million contracts, indicating that sellers were hedging against a possible breakout above 51,000. The ratio of call OI to put OI (C‑OI/P‑OI) therefore edged up from 1.19 on 15 April to 1.55 on 4 May, signalling a net bullish tilt among long‑dated participants.
FII derivative positioning mirrored this sentiment. Daily reports from SEBI revealed that foreign institutional investors (FIIs) added 312 crore worth of Bank Nifty futures on 30 April, while net short positions in Bank Nifty options fell by 84 crore on the same day. Retail investors, however, displayed a divergent pattern: the NSE “Retail Participation” tracker showed a 27 per cent rise in the number of new retail accounts holding Bank Nifty options between 15 April and 5 May, most of them buying out‑of‑the‑money (OTM) calls.
The volatility backdrop was relatively calm. The India VIX spot index hovered around 13.2 on 15 April, dipped to 11.8 on 28 April, and settled at 12.1 on 5 May (VIX data, NSE). The muted VIX implied low implied volatility (IV) across strikes, a condition that would later facilitate an IV crush as expiry approached.
2. The day of expiry , price action and OI dynamics
On 6 May 2025, Bank Nifty opened at 50,720, rose to a high of 51,110, fell to a low of 50,790, and closed at 50,950 (OHLC, NSE). The intra‑day range of 320 points was tighter than the 15‑day average range of 410 points, underscoring the market’s reluctance to break decisively beyond the 51,000 threshold.
The chart below captured the minute‑by‑minute movement and highlighted the price cluster around the 51,000 strike:
From 10:30 IST to 12:00 IST, the index oscillated between 50,800 and 51,100, repeatedly testing the 51,000 level. At 11:45 IST, a surge in call buying pushed the price to 51,080, but the rally stalled as sellers absorbed the buying pressure. By 13:30 IST, the index slipped back to 50,880 and remained there for the rest of the session, suggesting that the market had found a temporary equilibrium just below the 51,000 strike.
Option‑chain data at 12:30 IST (source: NSE) showed that OI in the 51,000 call had surged to 1.82 million contracts, up 12 per cent from the previous day’s 1.62 million. The same strike’s IV fell to 14.3 per cent from 15.6 per cent on 4 May, reflecting the IV crush that typically accompanies high OI accumulation close to expiry.
Conversely, the 50,800 put series saw OI rise modestly to 1.05 million contracts (up 3 per cent from 4 May), while its IV edged down to 13.9 per cent. The put‑call volume ratio (PCR‑vol) on the expiry day stood at 0.86, down from 1.02 three days earlier, indicating that call volume outpaced put volume as the market angled higher.
The daily chart of the expiry day, which plotted the index against the OI‑weighted max‑pain line, illustrated the pinning effect:
The max‑pain calculation, performed using the standard algorithm that sums the dollar value of all OI at each strike, placed the theoretical “pain point” at 50,970. This figure lay merely 20 points below the closing price of 50,950, confirming the high accuracy of max‑pain as a short‑term predictor in a low‑volatility environment.
3. Strike‑pinning and the max‑pain narrative
The 51,000 strike had acted as a magnet throughout the expiry week. On 4 May, the index closed at 51,020, just 20 points above the strike, and OI in the 51,000 call had already breached the 1.6‑million mark. By 6 May, the call OI at 51,000 had become the single largest OI concentration across all strikes, accounting for 14.2 per cent of total Bank Nifty option OI (source: NSE).
When the price approached the strike, market makers typically adjusted their delta‑hedging positions, buying the underlying to offset the short call exposure. This buying pressure contributed to the brief intra‑day rally above 51,000. However, the same hedging activity also created a ceiling: as the price crossed 51,000, the delta of the 51,000 call turned from slightly negative to positive, prompting market makers to sell the underlying to rebalance, thereby pulling the price back below the strike.
The max‑pain line, plotted on the daily chart, intersected the 51,000 strike at 50,970, a point that matched the settlement price of the underlying futures (50,970, NSE). The alignment suggested that the majority of option writers , both institutional and retail , were positioned to profit from a settlement just below the strike, and the market’s micro‑structure reinforced that outcome.
Historical comparison reinforced the significance of this pinning. In the May 2023 weekly expiry, the max‑pain point had missed the settlement by 115 points, and the index had broken out to a new high of 52,300. In contrast, the 2025 expiry demonstrated a 95 per cent convergence between max‑pain and settlement, the highest alignment recorded for Bank Nifty since 2020.
4. PCR, IV crush and the volatility squeeze
The PCR (put‑call ratio) is a widely watched barometer of market sentiment. On 6 May, PCR‑OI stood at 0.78 (put OI 1.03 million / call OI 1.32 million), down from 0.92 on 3 May. PCR‑vol, which uses traded volume instead of OI, fell to 0.86 from 1.02 in the same period. Both ratios indicated a tilt toward call‑side aggression in the final hours of the week.
Implied volatility across strikes collapsed sharply as expiry neared. The 51,000 call’s IV dropped from 15.6 per cent on 4 May to 14.3 per cent at 12:30 IST on 6 May, a 8.3 per cent decline. The 50,800 put’s IV fell from 14.9 per cent to 13.9 per cent, a 6.7 per cent reduction. The overall IV term‑structure flattened, with the 30‑day IV averaging 13.4 per cent, the lowest level for the month of May.
The IV crush benefitted option writers, particularly those who had sold the 51,000 call earlier in the week. Their premium decay accelerated as the market’s expectation of a large move evaporated. Retail traders who entered OTM calls on 2 May at an IV of 17.2 per cent saw the premium erode by an average of 42 per cent by expiry, according to broker‑level data (source: Zerodha, client‑level analytics).
5. FII versus retail positioning , a divergence narrative
Foreign Institutional Investors (FIIs) continued to dominate the directional bets on Bank Nifty. SEBI’s daily derivative position report showed that FIIs held a net long of 1,124 crore in Bank Nifty futures on 5 May, increasing to 1,266 crore on 6 May, the day of expiry. Their net short in Bank Nifty options fell from 312 crore to 198 crore over the same period, indicating a concerted shift toward buying calls and writing puts.
Retail participants painted a contrasting picture. The NSE’s “Retail Options Participation” metric recorded a 21 per cent rise in the number of retail accounts holding Bank Nifty calls between 15 April and 6 May, while the number of retail put holders grew by only 6 per cent. Moreover, the average retail call strike was 50,800 , three strikes OTM , suggesting that retail traders were betting on a modest upside rather than a decisive breakout.
The divergence manifested in the settlement outcome. FIIs, with their larger capital base, were positioned to profit from the modest rise to 50,950, as their net long futures appreciated by approximately 0.5 per cent, while their written calls expired worthless. Retail traders, however, suffered on two fronts: those who purchased OTM calls at strikes above 51,200 incurred total loss, and those who wrote puts at 50,800 faced marginal losses as the index settled just above the strike, triggering a small settlement‑price penalty.
6. The VIX and its role in the expiry narrative
India VIX, the market’s fear gauge, closed at 12.1 on 6 May, down from 13.2 on 15 April. The VIX futures curve reflected a steep backwardation, with the front‑month future trading at 12.3 and the two‑month contract at 14.0. The steep curve indicated that market participants expected volatility to remain subdued in the near term but to rise again in the medium term, possibly ahead of the June 2025 quarterly earnings season.
The low VIX environment had two immediate consequences. First, it allowed option writers to collect relatively high premiums earlier in the week, as IV was still modestly elevated (15, 16 per cent) before the crush. Second, it reduced the probability of a sudden, large‑scale move that could have forced a break above 51,200, a level that would have triggered a cascade of margin calls for heavily leveraged call sellers.
7. Synthesis , what the expiry told us
The May 6 expiry illustrated a textbook case of “strike pinning” driven by concentrated OI, aggressive call‑side hedging, and a collapsing IV environment. The convergence of the max‑pain point with the settlement price (a 20‑point gap) reinforced the relevance of the max‑pain metric in low‑volatility regimes.
The PCR dynamics confirmed that call‑side pressure had dominated the final hours, while the IV crush rewarded writers and penalised late‑entering retail buyers. The divergence between FII and retail positioning highlighted a broader market narrative: institutional players were comfortable with a modest upside and used futures to express directional bias, whereas retail participants chased OTM calls, exposing themselves to the volatility squeeze.
8. Verdict
BULLISH , short‑term (1‑2 weeks)
The expiry demonstrated that the market could sustain a price above 50,800 without triggering a panic sell‑off. With FIIs maintaining net long futures and the VIX remaining below 13, the next week was likely to see incremental buying pressure, especially if macro data (e.g., RBI policy statements) remained supportive.
All price, OI and volume figures were sourced from NSE daily market reports, SEBI derivative position statements and VIX data releases. Chart images are linked from the BazaarBaazi archive.