Traders’ Bets On Index Options Reflect Expectations Of Near-Term Weakness

Traders bought index put options on Friday, indicating caution as major Indian equity indices retreated to wipe out gains made through the week. Foreign investors added short positions in index futures, further reflecting change in sentiment.

Foreign investors and proprietary traders together bought 36,771 index put contracts against only 3,598 index call contracts on a net basis. A considerably higher number of put options bought in comparison to call options ordinarily reflects traders’ expectations of decline of indices in the near term.

Moreover, 41,102 index call options were written by foreign investors and proprietary desks against selling of 6,157 index put contracts on a net basis. This is usually seen as strengthening of resistances for indices to gain in the near term.

The India Volatility Index (VIX) rose 3.6 percent to close at 11.69 reflecting expansion in option premiums. Hemant Nahata, senior derivatives analyst at IIFL Wealth Management said it will be challenging for the India VIX to sustain at such low levels for a longer period in time.

Maximum open interest remained with Nifty 9,000 put and 9,500 call indicating a near-term range for the Nifty.

Among the most active contracts, oil marketing companies Bharat Petroleum Corporation Ltd (BPCL) and Indian Oil Corporation Ltd (IOC) bucked the trend and gained on Friday.

• BPCL witnessed an over 9 percent decline in open interest while the stock gained indicating covering of positions sold earlier.
• IOC’s April futures saw fresh long positions with an increase of over 10 percent in open interest on Friday.