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Huge Options build up in NIFTY ahead of RBI Meet & Budget

, March 14, 2012, 0 Comments

In a heavy event loaded week, just ahead of RBI’s meet on Thursday and Union Budget on Friday huge option build-up in NIFTY 5600 Call and 5200 Put is witnessed. Traders are watching 5510 level on NIFTY future very closely as any sustainable move above this level will result in short covering and Long build-up and vice versa.

RBI Meet
Consensus estimates shows that CRR cut by RBI on last friday is quite bold and more than anticipated. RBI may start reducing lending rates from April 2012 onwards and any surprise on that front may lead to further additions of Long in rate sensitive and banking stocks.

Union Budget
RBI meet will be followed by Union Budget on friday. Expectation are quite low from Budget and market participants will closely watch Fiscal deficit figure and how Finance minister will fund its subsidies next year. Petrol and Diesel price hike is also another politically sensitive issue remains to be seen.

Cashing on Volatility
Traders who would like to take benefit from thursday and friday’s event may take long position in Call and Put of 5500. Buying 5500 Call [Closing price Rs. 115] and  5500 put [Closing price Rs. 105] will result in to cash outflow of Rs. 11,000/- and any move above 5720 or 5280 will result in to net gains of Rs. 50 for every point. There is no risk involved beyond Rs. 11000/- initially paid as we assume long positions in  Call and Put and maximum loss is the Net Premium paid.

The rational behind such position is to cash on the high Volatility. Stop loss in terms of value of position could be kept at Rs. 5000. (i.e. While reversing both above mentioned positions holder should realise Rs. 6000 after booking loss of Rs. 5000)

 

Disclaimer : This article is not a suggestion or advice to trade. Any Investor or Trader who desire to take position should posses basic knowledge of Derivative market, Options terminology, Initial cash inflow/outflow and settlement upon expiry, Pay offs, risk and reward involved in Derivative market and Options market. We strongly recommend readers to consult their broker before assuming any positions






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