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Anup Menon

Index Options: Trading interest in index calls was more or less stable during the week. As was the case last week, two calls managed to find a place in the list of top 10 traded contracts. The performance of index puts was relatively better. Three contracts managed to find a place among the list of top traded puts.

The most actively traded March contract was the 1200 strike. Total traded volumes stood at 896 contracts. It was last priced at 13.30 points. The option is OTM. The premium consists of purely time value and works against the buyer. The implied volatility on the option works out to around 17 per cent and is not aligned to the average statistical volatility of the underlying. Hence investors can consider buying into the contract at current levels. But the probability of the trade being profitable is not very high.

An even better strategy would be to buy into the 1160 call. The option clocked volumes of around 346 contracts. It was last priced at 24.80 points. It is ITM with the intrinsic value accounting for 73 per cent of the premium. The implied volatility on the option is not aligned to the average statistical volatility. Investors can bet on the volatility differentials and take a long position in the contract. The probability of the trade being profitable works out to around 43 per cent.

Among the index puts, the most actively trade contract was the 1140 strike. The option was last priced at 17.65 points. The option is OTM. The premium consists of purely time value and works against the buyer. Further, the volatility levels are also not aligned. Hence investors can consider selling the option at current levels. The probability of the trade being profitable works out to around 87 per cent.

An even better strategy would be to sell the option with 1100 strike. The option is deep OTM. It was last priced at 8.10 points consisting purely of time value. The probability of the trade being profitable works out to around 95 per cent.

Investors can also consider creating a call spread by buying into the 1160 strike and selling the 1180 strike. The probability of the trade being profitable works out to around 55 per cent.

Investors can also consider selling a strangle with the 1200 calls and either the 1100 puts or the 1160 puts. The probability of the trades being profitable works out to round 62 per cent and 57 per cent respectively. Investors should note that selling a strangle involves very high risk and given the low probabilities, only investors with a high tolerance for risk should consider this strategy.

Stock Options - Calls and Puts

Among the stock options that were actively traded included contracts on Satyam Computers and Reliance Industries among others.

The March maturity 320 calls on Satyam Computers was actively traded. Total traded volumes stood at around 571 contracts. The option is OTM. The option was last priced at 6.05 points. The premium consists of purely time value and works against the buyer. The implied volatility on the contract is not aligned to the average statistical volatility of the underlying. Investors can consider selling the option at current levels. The probability of the trade being profitable is fairly high at 90 per cent.

The March maturity 240 put on Satyam Computers was also actively traded. Total traded volumes stood at around 169 contracts. The contract is OTM. It was last priced at 5.45 points and consists of purely time value. Investors can consider selling the option at current levels. The probability of the trade being profitable works out to around 88 per cent.

Investors can also consider creating a put spread by buying into the 280 puts and either the selling 260/300 puts. By using the 280/300 combinations, the investor would have a net cash inflow. The probability of the trade being profitable in both cases works out to around 60 per cent.

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