Nifty Op­tion Traders Turn Greedy, Hope to Hit ‘Jack­pot’

The Economic Times - - Markets + Finance - RAM SAH­GAL

Man’s greed knows no bounds. This may be said of rich do­mes­tic pun­ters, many of whom have not booked prof­its de­spite hav­ing made a near three-fold re­turn in just four trad­ing ses­sions by buy­ing Nifty op­tions on the bet that the in­dex would pierce the psy­cho­log­i­cal 7000-bar­rier, which hap­pened on Mon­day. The rise in the mar­kets has co­in­cided with an in­crease in the Nifty 7000 call op­tion’s im­plied vo­latil­ity (IV) — es­ti­mated mag­ni­tude and rate of price change — which, in turn, has in­creased its price by al­most three times to .` 294 on Mon­day from .` 108 on Wed­nes­day last week. IV of the Nifty 7000 call rose from around 32% last week to 44.5% on Mon­day. How­ever, not con­tent with the tre­bling of the op­tion’s price, the pun­ters are hold­ing on to their po­si­tions on hopes of hit­ting a “jack­pot”. This, an­a­lysts said, may be on the premise they (pun­ters) hold that vo­latil­ity, or vols, of the 7000 call could rise fur­ther ahead of the elec­tion re­sults on May 16. Al­ter­na­tively, even if vo­latil­ity does not in­crease much more, a rise in the Nifty, as wit­nessed over the past two trad­ing ses­sions, could fur­ther boost the price of the op­tion, they feel. How­ever, they risk los­ing their gains if mar­kets cor­rect. Mar­kets have priced in a BJP-led coali­tion, helmed by Naren­dra Modi, com­ing to power af­ter the gen­eral elec­tion. If exit polls hint that it may not be smooth sail­ing for the BJP, a fall in mar­kets could be as sharp as the re­cent rise. But that doesn’t seem to con­cern the pun­ters much. “I’ve come across a case where a trader con­tem­plates buy­ing a 7400 Nifty call as he’s set a tar­get of 7600 for Nifty,” said Bhavin De­sai, de­riv­a­tives an­a­lyst, Motilal Oswal Fi­nan­cial Ser­vices. “Some of the traders tak­ing direc­tional calls have fore­cast 7600-7900 lev­els for the Nifty by the end of the cur­rent se­ries. They seem to be play­ing for mar­ket ac­tion, if not for vo­latil­ity to rise any fur­ther”. But other an­a­lysts point to IVs shoot­ing up to nearly 60% in the last gen­eral elec­tions and said that the cur­rent IVs of around 42% could also rise fur­ther. “There’s a dif­fer­ence be­tween good re­turn and jack­pot re­turn and if a trader is hold­ing on de­spite a tre­bling of re­turn, it’s be­cause he’s aim­ing for the lat­ter,” said Ashish Chaturmohta, head, de­riv­a­tives re­search, For­tune group. Chaturmohta re­called how the pre­mium of the 3800 Nifty call rose to .` 700 from just .` 80 within three days dur­ing the pre­vi­ous elec­tions. “I think IVs have the scope of ris­ing fur­ther from cur­rent lev­els. Even if mar­kets were to de­cline, pre­mi­ums won’t fall much be­cause of the high IVs,” he said. An­other in­ter­est­ing data point is that the IVs of call op­tions are more or less keep­ing pace with those of put op­tions, sug­gest­ing a great deal of call buy­ing hap­pen­ing on ex­pec­ta­tions of a favourable elec­tion out­come, said Chetan Jain of Anand Rathi. He pointed to a “phenom­e­nal” rise in out­stand­ing po­si­tions of the 7000 Nifty put to stress his point. The 7000 put has seen a jump in open in­ter­est by 12.55lakh shares to 22.2-lakh shares over a sin­gle trad­ing ses­sion. This in­di­cates high-risk traders are sell­ing the put op­tion in the hope mar­ket won’t fall from its cur­rent record high, Jain said. A call op­tion the­o­ret­i­cally gives a buyer the right to pur­chase the Nifty at a lower price if the in­dex rises. His gain is the dif­fer­ence of the sale and pur­chase prices of the in­dex. A put op­tion, on the other hand, al­lows its buyer to sell the in­dex at a higher price if it falls. The 7000 call op­tion has the high­est open in­ter­est — 58.6-lakh Nifty shares — com­pared to any op­tion in the cur­rent se­ries as on Mon­day.

The IVs of call op­tions are more or less keep­ing pace with those of put op­tions

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.