Traders bet on calendar spread as Nifty moves in a tight range

Synopsis

A trading operation involving Nifty options is gaining prominence among savvy trading desks of organization investors.

MUMBAI: A trading operation involving Nifty options is gaining prominence among savvy trading desks of institutional investors. The strategy, known arsenic calendar spread, wherever traders simultaneously merchantability options contracts successful the existent period and acquisition successful the adjacent month, is being recommended by brokers to organization clients, who spot crisp moves successful Nifty options’ implied volatility — a cardinal constituent of options pricing — successful September.

“There is scope for wealth to beryllium made by selling existent period vols (implied volatility) and buying September vols,” said Girish Patil, manager-derivatives, Antique Stockbroking. In this dispersed strategy, traders usage the premium they person by selling the existent bid to part-finance the outgo of buying options successful the adjacent month. “With lone a fewer much days for the August bid expiry, vols are improbable to leap successful this series,” Patil said.

Futures and options contracts for the August bid volition expire connected 26th portion the September bid volition expire connected 30th adjacent month.

Options sellers, who pouch the premium from the buyer, similar less trading days successful a trading period due to the fact that of clip worth — different cardinal facet of options pricing. Time worth of options decays person to expiry of contracts, resulting successful constricted movements successful options prices.

Selling Nifty 5500 calls options successful the August bid and buying the aforesaid declaration successful the September bid is simply a bully strategy successful this benignant of a market, said Shailesh Kadam, AVP-derivatives, PINC Research.

“This strategy bets that the Nifty volition beryllium range-bound and volition not determination supra 5500 successful the August series, portion the undertone is affirmative adjacent month,” Kadam said.

In the past 1 month, the Nifty has mostly moved successful a choky set betwixt 5350 and 5450, resulting successful the volatility scale — a measurement of traders’ expectations of near-term risks successful the marketplace — moving successful the 15-20% band, the lowest scope since January 2008. This indicates traders are comfy astir the marketplace levels successful the near-term.

Brokers said that options traders person struggled to marque money, of late, successful the lack of crisp scale movements. “Vol buyers (buyers of options) person mislaid their money, portion sellers don’t person the courageousness to merchantability vols astatine specified debased levels,” said the caput of derivatives astatine an organization broking house. “So, unless determination is simply a crisp move, calendar dispersed appears to beryllium the champion strategy,” helium said.

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