Derivative traders are betting on the NSE Nifty slipping even below the 5,000-mark in September. The open interest (OI) for the put option of 4,900 grew the most by 25,048 lots between Tuesday and Wednesday as markets traded in the red.
According to experts, if markets again breach the 5,100-level, the premium for this contract is expected to rise. “This is an out-of-money strike. On Wednesday, this contract was traded heavily and most deals were struck between the range of Rs 80 and Rs 120. The OI in this option grew on account of panic in markets and negative news flows. Currently, the contract is trading at a premium of Rs 44,” said Azeem Ahmad, chief manager, derivatives, ICICI Securities.
The benchmark NSE Nifty touched a low of 5,118 on Wednesday before closing at 5,285. On Tuesday, it closed at 5,287, increasing the open interest in 4,900 put option. In recent days, markets have come under pressure owing to the falling rupee and fears of QE tapering by the US Federal Reserve.
On Thursday, however, NSE Nifty regained some lost ground as it gained 2.35% to close at 5,409. The open interest grew the most in 5,100 call, followed by 5,300 and 5,600. On put side, 5,000 saw the maximum spurt in OI compared to the previous day. A total of 51.8% of Nifty futures have been rolled over for September and October series. A rise in open interest indicates new positions are being taken in a particular contract.
Foreign brokerages expect markets to remain volatile and feel that the Nifty would move in a lower range. US brokerage Goldman Sachs recently cut its NSE Nifty target to 6,200. Swiss financial major UBS also expects Nifty to trade in a lower range. While derivative analysts advise against out-of-money contracts, they feel that if the markets swing in the trader’s favour and see a steep fall in September, 4,900 put can give bumper returns.
“The contract is typically a punter’s bet. The trader would be making a loss of Rs 44 per lot, while if he is lucky, he can make about 10-times or even higher gains on his investment. However, 5,300 put would be a prudent strategy,” said Bhavin Desai, equity derivatives analyst, Motilal Oswal.