Bank of Baroda may fall another 20% after Q3 show

MUMBAI: A couple of interesting events played out on Friday, a day before Bank of Baroda (BoB) posted the worst quarterly loss by any bank so far. Traders bought a huge number of put options, expiring on February 25, at the 90 strike. A good quantity of shares were up for borrowing on the stock lending and borrowing window of NSE, as BoB futures traded at a 1.62% discount to the spot shares.

Huge outstanding positions or open interest build-up has happened at the 130 strike call as its price has been falling successively, implying shorting by traders on expectations the share price won't jump to that level anytime soon. At the 90 put, 2.3 lakh shares were added over night through Friday taking OI to 2.9 lakh shares.

The OI jump was accompanied by an overnight 46% spurt in option price to Rs 1.9.

If BoB falls to Rs 90, the option price could jump 5 times from Rs 1.9, a rough calculation shows.

On the SLB window, where 25.9 lakh BoB shares were up for lending, borrowers will sell the shares while buying BoB futures to capture the Rs 1.85 spread between spot and futures. Once that happens they will buy back shares at a cheaper rate and return them to lenders, who earn interest on lending.