The market on Monday posted its second biggest fall ever, with the Nifty futures closing below 4,500 at 4,477 and at a good 26 points discount to spot. The Nifty seems to be headed next to the 4,300 levels as Put writing took place around 4,350-4,400.The trading activity in index options heightened on Monday, with the turnover rising 12 per cent to Rs 6,737 crore. The options traders short covered their in-the-money put options and wrote fresh out-of-the money call options.A remarkable open interest built-up was witnessed in 4350 and 4,400 Put options as the open interest at 4,350 and 4,400 strike prices increased by 400 per cent and 200 per cent respectively.The 4,350 Put options were traded at premium of 85, while 4,400 Put contracts were traded at premium of Rs 100, indicating that Nifty may take support around 4,300.There was also Put writing in April contracts at the 4,600 strike price and the premium was Rs 330 a contract. This suggests a strong support around 4,300 levels. In options contracts, the Put writing indicates support and Call writing suggests resistance levels.Basically, the put buyer either expects the price of the underlying asset to fall by the exercise date or hopes to protect a long position. The advantage of buying a put over shorting the asset is that the risk is limited to the premium.The put writer does not believe the price of the underlying is likely to fall. He sells the Put to collect the premium. Puts can also be used to limit portfolio risk.
