Option Trading Strategies Related

[TradeOptions]

Dear friends, please post here the links to any interesting articles etc. related to Options Trading.

I start with the Option Punters Favorite Counter - INFY :thumb:, which will announce its quarterly results tomorrow.

Here is the article -

F&O bets need big swing in Infosys to make money

MUMBAI: Traders, who purchased huge quantities of InfosysBSE 3.13 % call and put options in the last-half hour of trading on Friday face the risk of huge losses if the stock does not fall or rise by at least 7-8 per cent on Monday, when the company announces its second quarter results.

Implied volatility (IV), a measure of traders' expectations of price swings in Infy calls and puts and key determinant of an option's price, jumped around 20 per cent in the last 30 minutes of Friday's trading. Traders stocked up on options with the company slated to announce results before the markets open at 9:15 am on Monday.

Infosys shares ended up 3.4 per cent at Rs 1,171 apiece on Friday. Calls of 1200 and 1240 price levels and puts of 1100 and 1060 levels saw a huge spike in activity, among other options. "Markets are expecting Infosys would declare results prior to market opening, and whenever that has happened the counter has witnessed wild moves," said Rajesh Baheti, MD of Crosseas Capital.

When Infy declared its results for the first-quarter during premarket hours, its stock rose by 11 per cent and call buyers made a killing (put buyers faced huge losses). Those who expect good performance amass call options - instruments which rise when the underlying share price increases. Pessimists buy puts, which gain when the share falls.

IVs jumped to 45-46 per cent in calls and 51-54 per cent in puts of Infy at close on Friday. These will fall just after the results are announced. The fall in the IVs will eat into the option's price and the buyers of both calls and puts would find options' prices declining sharply on Monday unless the Infy stock moves up or do iiwn sharply post the results.

"Traders will bleed if the stock moves less than 7-8 per cent on Monday," estimates Navneet Daga, senior derivatives analyst, India InfolineBSE -0.54 %. "Only a large movement in the stock will offset the fall in IVs."

Read more at:
http://economictimes.indiatimes.com...ofinterest&utm_medium=text&utm_campaign=cppst

Thanks and regards

 

[TradeOptions]

Cautious FIIs stock up on Nifty puts to hedge against a fall - published on 7 Oct 2015


MUMBAI: The sharp recovery in Indian stocks from their September lows amid global market volatility has prompted foreign institutional investors (FIIs) to aggressively purchase insurance against a possible market fall. In the last two weeks, they have bought Nifty put options worth Rs 15,000 crore — the biggest buying spree of hedges in the past five years.

While FIIs have turned net buyers in October so far and have initiated some bullish bets in the last two trading sessions after dumping shares worth almost Rs 23,000 crore in August and September, analysts said the undertone remains cautious.

"FIIs want to protect their recent gains amid the unpredictable market environment," said Amit Gupta, head of derivatives at ICICI Direct.

The Nifty has gained 8 per cent since September 7. Analysts said investors are not ruling out a decline if the September quarter results season starting next week disappoints.

Nirmal Jain, chairman at IIFL, said, "The Indian markets may remain volatile going ahead as corporate earnings may post some negative surprises. Investors should exercise caution in the markets."

InfosysBSE 3.13 %, India's second-largest software company, is expected to kick-start the earnings season for large companies on October 12. HCL TechnologiesBSE 2.49 %, India's fourth-biggest technology company, recently issued an earnings warning.

"FIIs are taking protection ahead of the corporate earnings season amid global market environment, which continue to remain uncertain," said Bhavin Desai, derivatives analyst at Motilal Oswal. "Market volatility has definitely reduced, but it's still far from the levels we had seen a few months back."

The index to measure market volatility — NSE India VIX — in- creased 0.93 per cent to 19.30 on Tuesday. The ratio of net long put options to net long call options stands at 2.6 against the six-month average of roughly 1.8. This means traders are buying more puts than calls, an indication of uneasiness among investors. But, the comforting factor is the ratio is off the highs of 4.7.

Nifty closed 33 points, or 0.41 per cent, higher at 8,152 on Tuesday, but the highest concentration of put base is seen at Nifty 7,800 strike with 42.73 lakh shares of open interest or outstanding positions, followed by Nifty 7,500 strike with 37.81 lakh shares of open interest. "We expect Nifty to face resistance around 8,200. If this is crossed decisively, then the second hurdle is seen at 8,400," said Yogesh Radke, head of quantitative research at Edelweiss Capital.

Read more at:
http://economictimes.indiatimes.com...ofinterest&utm_medium=text&utm_campaign=cppst

 

[TradeOptions]

Dear friends, please post here the links to any interesting articles etc. related to Options Trading.

I start with the Option Punters Favorite Counter - INFY :thumb:, which will announce its quarterly results tomorrow.

Here is the article -



Thanks and regards

Update of Infy Options at 9.30 am

The spot price did not move much, the IV's have crashed on both sides. Most of the Calls have crashed around 50 %

Thanks and regards

 

[TradeOptions]

How to play Nifty options ahead of Bihar elections and win

http://economictimes.indiatimes.com...ar-elections-and-win/articleshow/49460276.cms

20 Oct 2015 MUMBAI: Traders with an appetite for risky bets can adopt a strategy involving Nifty options to make a neat profit in the run-up to the Bihar election results in the first week of November, said derivative analysts. They stand a chance of making around two times the initial investment as nervousness around the outcome of the state polls could drive up values of options.

Smart traders are simultaneously buying Nifty call and put options betting that the index could move sharply either side on the basis of the election results. A victory for the NDA government in the crucial state polls will result in a big market rally and a loss in an equally large correction. But, in either scenario, they promise that their clients would gain if they did the long strangle strategy.

"Rather than taking a directional view, it's better to do a long strangle, since markets can spring unexpected surprises," said Rajesh Baheti, MD, Crosseas Capital. The long strangle comprises simultaneous purchase of an 8000 Nifty put and an 8500 Nifty call expiring in November. Purchasing a call is a bet that Nifty would rise and buying a put that it would correct. For purchasing the two options, the trader pays a combined Rs 148 to the options writer. By buying both options, the traders seek to benefit irrespective of the Nifty's direction, based on the exit poll results after November 5 or after results are declared on November 8.

The trader will lose only if the Nifty trades between 8500 and 8000 after the polls. In such a scenario she could very nearly forfeit the price paid to the seller. Their bet is that if the NDA wins, Nifty would rally more than 4.5 per cent from Monday's close to over 8648. If it loses, they expect the index to fall over 5 per cent to less than 7852.


"That clients are readying wagers ahead of the Bihar polls is borne out by the rise in trader activity in the 8500 and even 8700 calls for November and the 8000 put for the next month," said Navneet Daga, senior derivatives analyst, India Infoline. Indeed, traders' outstanding positions, or open interest (OI) of the 8000 put has risen from 6.8 lakh shares last Thursday to almost 10 lakh shares on Monday, provisional NSE data shows. That of the 8500 call has risen from 8 lakh shares to 10.3 lakh shares over the same period.

However, independent analysts like Aadil Sethna, who earlier headed the derivatives desk at HSBC, the buildup of activity in the 8500 and even the 8700 calls suggests a change in sentiment for the "better" with FIIs having infused 3616 crore in shares in the month through Friday after having sold Rs 22,875 worth of equities in the previous two months.

 

[TradeOptions]

Markets could rise 2% more from Thursday’s closing

MUMBAI: Stock indices could rise another 2% from Thursday's closing if position build-up in Nifty options is anything to go by. The Fed action of hiking a short-term interest rate and 'dovish' commentary as widely anticipated by the Street saw bulls mounting bets over the past two sessions. Derivatives experts, however, warned that any rise would be shortlived in the absence of major triggers back home.

Bulls have raised positions on Nifty options which bet the market could test 8000 by December-end. The Nifty gained 93.45 points (1.21%) to close at 7844.35 on Thursday. Bears who built huge positions that the index could slump to 7500 over the same period squared these off at a substantial loss on Thursday.

Outstanding positions on markets hitting 8000 rose to 78 lakh shares on Thursday from 62.5 lakh shares on Tuesday, while the price per share rose 74%. Bears sharply cut bets of markets falling to 7500 to 57.5 lakh shares from 80.51 lakh shares over the same period as the share price tumbled by a whopping 83%.

"Those who purchased Nifty puts virtually lost their shirts with their value plummeting on Thursday, while those who purchased calls have raked it in," said Jitendra Panda, CEO, Peerless Securities. But Panda, who sees 8050 as a major hurdle, warns that further gains could be "limited" and "brief at best" with the government facing problems in getting Opposition consensus for passing the GST Bill.

SK Joshi, ED, Khambatta Securities agrees. "The rise of 2.5% this week has been driven by Fed expectations. We could rise a bit more from here if global stocks continue their rally. But once that happens, those who've raised bullish bets will take away profits and that could result in a correction unless something really big happens at home," he said.

Those betting on a rise in Nifty buy call options, while those who think the index will fall, buy put options. The sellers of these options collect premiums from the option buyers.

The NDA-led government has postponed the passage of GST to June from April, with relentless opposition by parties like the Congress on certain points like the 18% constitutional cap on GST rate.

"Congress is likely to lose 12 Rajya Sabha members after April, while BJP would gain about 12. Though the tally of AIADMK, which is opposed to GST, will go up in the Rajya Sabha after April, the government hopes to get some nominated members to its kitty to more than compensate for that," a top government source told ET.


http://economictimes.indiatimes.com...om-thursdays-closing/articleshow/50226245.cms

 

[TradeOptions]

VIX slump to a 9-month low catches punters short

MUMBAI: Derivative traders who were expecting market volatility to increase and had created aggressive short positions in run up to the US Federal Reserve rate hike event were caught on the wrong foot, as the index to measure volatility of fear gauge meter, NSE India VIX dropped 15% to hit 9-month low on Thursday.

Traders who had constructed complex strategies, including selling Nifty futures, and buying put options expecting prices to increase have lost money. Many were forced to cover their short positions as markets moved higher. Call option writers, who did not expect Nifty to rise higher than 7800 levels, have also lost money.

"The markets have run up sharply over past few days, but we expect Nifty to consolidate going forward and see December expiry around 7800 levels," said Jitendra Panda, CEO, Peerless Securities.

Nifty 7500 put option where the market concentration was the highest with 57.50 lakh shares, witnessed over 23 lakh shares being unwinded or positions being closed. The put option price of this particular strike dropped nearly 75% to `8.05 on Thursday; most of the bearish investors were active at this strike price.


http://economictimes.indiatimes.com...atches-punters-short/articleshow/50226300.cms

 

[TradeOptions]

Volatility spikes as FIIs buy puts at record levels

MUMBAI: Foreign institutional investors (FII) stepped up purchases of insurance against further declines in the Indian market on expectations the turbulence in China would lead to outflows from emerging markets.

These investors mopped up Nifty put options as the Volatility Index ( VIX) — known as the fear gauge — jumped 18% to 16.83.

Going by FIIs' purchase of index options, mainly Nifty puts, on a single day — the highest ever since the introduction of equity derivatives — analysts are expecting the index to slide to 7500, almost 4% below its close on Monday. The Nifty fell 2.2% to 7,791.30 on Monday.
FIIs net purchased index options worth a record Rs 4,125.42 crore on Monday, ETIG Database shows.

Most brokers believe these are Nifty puts. Combined with net selling of index futures worth Rs 40 crore, they sold a provisional Rs 667 crore worth Indian shares, indicating that selling pressure could continue.

Analysts like Hemant Nahata, head of derivatives research, India Infoline, and Bhavin Desai, derivatives expert with Motilal Oswal, believe that Nifty now distinctly faces the risk of breaking below 7550 "Once a low level is tested repeatedly, it has a tendency to break," said Nahata. "I see 7550 probably giving way this time around."

Some analysts see the expected correction to be modest. Jitendra Panda, CEO, Peerless Securities, does not expect the Nifty to fall more than 1% immediately from the current level.

He feels that "fresh buying" at 7700 will preempt the index from falling further, despite build up in positions at lower strikes like 7500.


http://economictimes.indiatimes.com...uts-at-record-levels/articleshow/50445197.cms

 

[TradeOptions]

The Economic Times ›
Bajaj Finance may hit Rs 3,000 post breakout: Analysts
Ram Sahgal August 09, 2018

Bajaj Finance options expiring on August 30 reveal that highest call open interest (OI) to be at the 3,000 strike price.
MUMBAI: Bajaj Finance, which hit a fresh high of Rs 2,819.65 Wednesday, has broken out of a technical pattern called pole and flag, giving traders scope of earning further 7 per cent returns over the short term, analysts said.
The stock spurted from a low of Rs 2,358 on July 19 to a high of Rs 2,745 a day later. It rose further a session later (July 23) to Rs 2,797. These three sessions, which clocked higher highs, formed the pole. Over the next 11 sessions through August 7 it consolidated in a 117-point range of Rs 2,655-2,772. This formed the flag.
Finally, on August 8, it made a fresh high of Rs 2,819.65, breaking out of the flag and pole pattern. “In the recent past whenever this stock broke out of the pole and flag pattern, momentum has driven it to fresh highs and this is what will happen after Wednesday’s breakout,” said Chandan Taparia, AVP, Motilal Oswal Securities.
Bajaj Finance options expiring on August 30 reveal that highest call open interest (OI) to be at the 3,000 strike price. This is nearly 7 per cent away from Wednesday’s close of Rs 2,810 and is potentially the level Bajaj Finance could test in the current series.

Bajaj Fin snip 1
The support would kick in at Rs 2,655, the low of the eleven sessions from July 24 – August 7. “The stock is on a roll and could well test Rs 3,000 having broken out from the flag and pole pattern,” said Rajesh Palviya, technical head at Axis Securities.
Out of 23 analysts tracking Bajaj Finance, 13 have a ‘buy’ rating on the stock, eight have recommended a ‘hold’ and 2 advise selling, cites Bloomberg.
The stock has rallied 58 per cent year-todate against the Nifty’s 9 per cent rise.

 

[TradeOptions]

The Economic Times ›
Key options data point at market nearing a top
Ram Sahgal August 13, 2018

Mumbai: A key indicator shows that market sentiment might not be as emphatically bullish as appears. The net market wide options open interest (OI) hit a record high of Rs 51,925 crore on Thursday, according to leading brokerage Sharekhan by BNP Paribas. On at least two occasions in the past, when this figure rose as substantially, the market topped out shortly afterwards and corrected by 9-11 per cent.

The number shows that traders are holding a higher proportion of outstanding (open) puts than call options by value. Since for every buyer there is a seller, or vice versa, the number could be viewed as a bullish or bearish indicator depending on whose take is being considered.

For instance, a put buyer expects an underlying stock or index to correct, but a put seller sells as he feels that the odds of a rise outweigh that of a fall and so he can pocket the premium paid by the buyer. However, past trends show that markets have topped out shortly after the net value soared as it did on Thursday.

Rohit Srivastava, fund manager - PMS, Sharekhan by BNP Paribas, cites the almost 11 per cent Nifty correction from January 29 through March 23 this year as having occurred after the net difference of market-wide outstanding options hit Rs 51,790 crore on January 23 . That was just two sessions before the market corrected from the then high of 11,171.55 on January 29 through 9,951.9 on March 23.

The same occurrence, although with a slightly greater lag, happened after the number hit Rs 40,002 crore on September 28 2010. On that date the index closed at 6,029.5 and rose to top 6,284.10 eleven sessions later, on October 14. From there, it corrected to 5,690 on November 26, down 9.4 per cent.

Interestingly, the Nifty made a record high of 11,495.2 on Thursday itself when the net reading hit Rs 51,925 crore. On Friday, the index closed at 11,429.5. Nifty August options show maximum resistance by open interest at 11,500. Maximum support kicks in at 11,000, though 11,200 also offers strong support.

For this month, at least, the maximum support falls 4 per cent below the record high tested on Thursday. “The number of puts purchased and outstanding show that many are buying insurance against a possible fall,” said Rajesh Palviya, derivatives head at Axis Securities. “With the results season more or less behind us, we will be coupled again to international markets which have shown stress signs of late due to concerns over the fallouts from a tariff war and the slump in Turkish lira on European banks.”

 

[TradeOptions]

SHORT STRADDLE ON THE NIFTY
Options Strategy Indicates Strong Support at 10100

[email protected]
Mumbai:

Derivatives traders have created a short straddle on the Nifty on expectation that the index will get strong support at 10,100 and face stiff resistance at 10,900. The levels are 2% below and 5.6% above Friday’s close to 10,316.45.

The short straddle is created when you sell a call and put at the same strike on the expectation that the market won’t rise above the strike sold plus premium received from the call buyer, or won’t fall below the strike sold minus premium received from the put buyer.

In the present case, the traders who had sold 10500 Nifty puts earlier sold huge number of 10500 calls to offset their losses with the market falling sharply below that level on Friday. The sale of the calls meant they have received a cumulative Rs 400 a share (75 shares equal one Nifty lot) from the option buyers. This places their upper breakeven point (BEP) at 10900 and lower BEP at 10100. A move in the Nifty above or below the respective levels would cause them to lose money.

In effect they created a straddle at 10500, where the maximum number of puts — 36.09 lakh shares — have been sold. The same action was seen on Friday at call strikes between 10600 and 10800 as put sellers scurried to recover their losses. The maximum number of calls sold is at 11000 (44.98 lakh shares).

The calls and puts expire on October 25.

The Nifty has fallen 1,444 points, or 12.3%, from its August 28 record high of 11,760.2 through October 5. Technical experts like Rohit Srivastava, from Sharekhan by BNP Paribas, believe the index is hugely oversold and is tipped for a technical bounce. However, derivatives analysts like Rajesh Palviya of Axis Securities expect the selling pressure to continue amid a sinking rupee and rising crude prices.

That the Nifty is oversold is evident from the open interest put call ratio (PCR) of index options that expire on October 25. The PCR was at 0.84 Friday, which shows traders have sold more calls than puts on expectation of limited upside, if any.

UR Bhat of Dalton Capital Advisors feels markets have been gripped by “panic “ post the IL&FS crisis, which he expects would “blow away” in due course as the takeover of the beleaguered infrastructure group by the government along with OMOs by RBI would stabilise the debt market.