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Informist, Monday, Aug 5, 2024

By Anshul Choudhary

MUMBAI – Options data suggests traders expect the Nifty 50 to fall further if global cues remain unfavourable. Premiums on the put options contracts surged after a sharp fall in the Nifty 50 amid a global sell-off due to unwinding of carry trades as Japan raised interest rates last week, and concern of recession in the US.

Carry trades is a strategy where investors borrow from markets with low interest rates, such as Japan, to fund investments in higher-yielding assets globally. However, with the Bank of Japan raising rates and some expectations of further rate hikes by Japan, the yen has moved up sharply, pushing investors to unwind their positions in risky assets.

Asian markets today closed sharply lower with Japan's Nikkei 225 Day and TOPIX falling over 12% each. Those in Europe opened lower with several of these falling nearly 3% each. US equity markets had closed lower on Friday with the S&P 500 down nearly 2%.

The Indian equity market was not shielded from this global sell-off and the Nifty 50 closed 2.7% lower at 24055.60 points. "The weakness may remain for few days...we saw that people have shifted positions from 24000 to 23000 (in options) and it will be difficult for the Nifty 50 hold 24000 points," said Nirav Chheda, a derivatives and technical analyst at Nirmal Bang Equities.

The sharp fall in the spot market led to a surge in premiums on the put side. For put contracts expiring this week, the premiums surged over 1000% for at-the-money strike prices, and even rose nearly 2000% for some of the in-the-money puts. The maximum addition of open interest was at 23000 puts, while the maximum open interest was at 24000 puts, followed by 23000 puts.

On the call side, traders sold in-the-money and at-the-money contracts. However, some expect a bounce-back, with some buying seen in deep out-of-the-money calls. Premiums at 24000 calls fell 63% to 433 rupees, while those at 24500 fell 84% to 40.50 rupees. The highest open interest on the call side was at 26000 strike prices, followed by 25000-24800 strike prices. The maximum addition of open interest was seen at 24400-24500 calls.

The August futures contract of the Nifty 50 closed at a premium of 38.50 points to the spot index. Open interest in the contract fell 2.3% to 15.25 mln, according to provisional data.

--Nifty 50 Aug closed at 24094.10, down 617.45 points; 38.50-point discount to spot index

--Nifty 50 Sep closed at 24225.00, down 610.80 points; 169.40-point premium to spot index

--Nifty 50 Oct closed at 24360.00, down 602.30 points; 304.40-point premium to spot index

HDFC Bank, State Bank of India, Reliance Industries, Tata Motors, ICICI Bank, Infosys, Hindustan Aeronautics, Bharat Electronics, Adani Enterprises, Maruti Suzuki, and Vedanta were among the most-actively traded underlying contracts.  End

Edited by Akul Nishant Akhoury

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