The current turbulence has prompted institutional investors to take a long-term view of the markets. This has been reflected in their participation in long-term options, especially the semi-annual options. The Open Interest (OI) for such contracts, which are adding shares now, received a cold feet when these contracts were launched by Sebi early this year. The number of put options contracts traded in the December-2008 series have risen from 20-odd contracts a few months back to more than 5,000 recently. The more traded contract was the Nifty put options at the strike price of 4,100. The OI, which stood at 6 lakh shares one month ago, has now surged to 11 lakh.
Experts believe that institutional investors with a long-term view of the markets have started using this tool to hedge their portfolios. Sidarth Bambre, derivatives analyst at Angel Broking, said, ?With the way markets are trading, some investors do anticipate 4K levels. At the 4K or 4.1K levels, the markets would be very attractive. So, by selling the put option, investors can hedge their portfolio and at the same time earn premium on such contracts. Even if the markets don’t reach 4K, the loss is limited to the price that the investor has paid for the option.”
Sandeep Singal, co head-institutional derivatives, Emkay, said, ?In such uncertain times, some investors are taking a long-term view (positive or negative) on the markets and using these long-term contracts to hedge their portfolios. The contracts are more concentrated towards the institutional segment as compared to retail investors, who are mainly present in the futures segment.”