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The benchmark 50-share Nifty has gained 12 per cent since the beginning of September. For traders who had long-through call options, the gains have been multi-fold.
A surprise move of about 600 points on the index has seen the price of Nifty call options rise about 30 times in just a dozen trading sessions, across strike prices. Conversely, the price of put options with the same strikes have plunged about 95 per cent. For instance, the Nifty call option with a strike price of 6,000, trading at Rs 4.85 at the beginning of the month, ended at Rs 169 on Thursday, a gain of a whopping 35 times.
The Nifty started the month at 5,471.8 and, therefore, call options with strikes of 6,000 were yet to gain currency, as these were deep out-of-the-money. Put options with the 6,000 strike price, already in-the-money, commanded a price of Rs 534, ending at Rs 31 on Thursday.
Experts said nobody had expected such a huge rally in the market, especially as investor sentiment was down after a 500-fall point in the Nifty in August, owing to a sharp decline in the rupee and the worsening macroeconomic prospects. “The Nifty has seen an unexpected 600-point rally after a 500-point fall last month.
This has surprised all categories of investors,” said Yogesh Radke, head (quantitative research) at Edelweiss Financial Securities. Siddharth Bhamre, head (equity derivatives), Angel Broking, said, “Nobody expected such a big move on the Nifty in such a short time. Even though long positions were being built around 5,500 levels, a lot of people went short at 5,800 levels.”
Investor sentiment improved after new Reserve Bank of India (RBI) Governor Raghuram Rajan took charge on September 4.
This had also coincided with a likely resolution to the crisis in Syria, which had earlier heightened uncertainty among investors.
Experts said there could be more steam left in the rally, as there weren’t many long positions built in the market. “Certain investors who had taken short positions have been caught on the wrong foot. These investors will square off positions and this could give a fillip to the market on the upside. The market may not correct anytime soon, if the RBI credit policy outcome is also positive,” said Bhamre.
Radke said, “The market could gain even more from current levels, as investors who have been left out would try to play catch up. The Nifty could face the next resistance at 6,300, around its previous all-time high.”
