Call option volumes surge on Idea-Vodafone merger buzz

Aditya Birla Group has denied reports that it was selling its telecom venture Idea Cellular. On Tuesday, a news channel reported that Idea Cellular would be merged with Vodafone India. “Regrettably, CNBC-TV18 have put out a wrong-headed baseless story stating that Idea is in talks with Vodafone on stake sale. This is absolutely untrue and preposterous,” the company said in a statement.

“There is no such intent. We request you not to be swayed by such motivated feed. Do not lend any credence to it,” the statement added.

Vodafone India also denied the merger talks.

But, before the denials came, the markets had already celebrated. The share price of Idea in the cash (delivery) segment surged and closed 6.7 per cent higher on the BSE at ~100.80.

Notably, the call-option market, too, saw a big spurt in volumes. The traded contracts, with a strike price of ~100 and contract expiring on August 25, saw the biggest surge in volumes. It jumped seven times on Tuesday compared to the previous day, to 4,016. With every contract coming in a lot of 5,000 shares of the company, the call-option turnover (value) in this contract jumped to ~204 crore compared to just ~28.5 crore in the previous day.

Given the rally in the cash segment and surge in volumes, the option premium jumped to ~2.85 at closing hour from ~0.15 before the news break at around 2.30 pm. While the volume jumped seven times during the day, open interest or the balance contracts came down 22 per cent from the previous day to 564.

Notably, the net openinterest across strike prices in the call-option declined. The open interest in ~90, ~92.50, ~95, ~97.50, ~100, ~110, ~115 and ~120, fell 3.48 million shares — including 795,000 shares in the strike price of ~100. On the other hand, the increase in open interest in six other strike prices (of call-options) was just 960,000 shares. The premium, however, across all strike prices moved up. The net decline in open interest in calloptions of Idea was 2.5 million shares.

“This (decline in open interest) indicates that there were more sellers on the exchange than buyers,” said the research head of a leading domestic brokerage, who did not wish to be identified.

“It (increase in premium) usually happens when daytraders start buying on news, but sell-off starts when the news is not found to be true,” he added.The options and other derivatives contracts are settled on the last Thursday of every month.

Before the denials came, the markets had already celebrated, share price of Idea in the cash segment surged and closed 6.7% higher on the BSE at ~100.80