INSUBCONTINENT EXCLUSIVE:
options expiring on February 13, said derivatives analysts
The short straddle is sound, given that the Nifty faces maximum resistance at 12,200 and gets strong support at 12,000 this week, they
said.
However, if the Nifty moves sharply out of this range upon expiry, option sellers could be exposed to unlimited loss unless they have
The idea behind shorting a straddle is that when markets are range-bound, option volatility declines with time and this reduces option
This, in turn, enables the sellers to pocket much or the entire premia paid by option buyers.
The Nifty closed at 12,098 on Friday
Using Friday closing prices, sale of a 12,100 call fetches the trader Rs 55 a share (75 shares make a lot) and the sale of a 12,100 put gets
her Rs 81, or a combined Rs 136 a share
The maximum profit accrues if the index closes at 12,100 this Thursday.
BCCLBelow or above 12,100, the profit keeps reducing until the upper
or lower breakeven points of 12,236 or 11,964; after which unlimited losses begin
If the trader receives premia of Rs 136, she could keep the stop loss at 160-170 levels.
Amit Gupta, derivatives head at ICICI Direct, said
index.
Indeed, option volatility measured by fear gauge India VIX has fallen from 17.37 a day before the February 1 Union budget to 13.75 on
Over this period, the 12,100 call price fell 57 per cent to Rs 55 a share Friday
1,12,150 contracts, NSE data Friday showed
The buyers of these futures contracts are wealthy clients, DIIs and proprietary brokers
On index calls, FIIs are cumulatively net long 93,592 contracts and on index puts they are net long 1,56,400 contracts
The sellers of index options are clients and prop traders
markets tended to have bottomed out or were in the process of doing so.
