A strangle position on Reliance contracts promises good value
Last week, most of the action was seen at the Hindustan Petroleum (HPCL) counter. Last Thursday the stock's price jumped five per cent to Rs 300. This was on hopes of its impending disinvestment. In the derivatives segment, the January 300 call of HPCL jumped 81 per cent over its previous close. Similarly, the 280 call gained 58 per cent. The sudden spurt in HPCL's cash price catapulted call and put prices to over-valued territory as indicated by the implied volatility. The at-the-money call and put prices implied a volatility of around 68 and 57 respectively, while the actual volatility as reported by the NSE was around 55. This indicates a higher expected volatility in the stock in the near future.
In tandem with the cash market, the January futures also gained around five per cent on Thursday to close at around 302
