Manic Monday: Stunned day traders try to get back in game

MUMBAI: On Monday, when the equities market crashed 1,600 points, Chirag Mehta walked out of the trading room in a daze. The 33 year old jobber -day traders who base their bets on the momentum of a particular cluster of stocks -with Touchline Securities had just encountered a meltdown unprecedented in a decade-old career.

Jobbers make profits by buying shares at lower levels and selling at small gains (on the same day). It wasn't to be on 'Manic Monday'.

On Tuesday, he seemed to not have fully recovered from the jolt."Bhaav bhagwan hota hai. Bhav ko respect karo (price is god, respect price)...keep booking profits,"he says wistfully.

The crash on Monday was rather peculiar, according to Mehta. "In all the previous crashes, the indices declined sharply, but individual stocks managed to stay fairly stable. On Monday, individual stocks crashed -around 10­15 per cent. Whatever people made in one year was lost in a few minutes." Tight stop-losses cushioned Meh ta's fall to some extent. But he is unlikely to forget the horror of Monday in a hurry.

Here is how it played out. The market opened with a 300-point gapdown. This decline in prices encouraged jobbers to buy more at the opening bell.But even after a few minutes into trading, they failed to spot upward blips (in stock prices) that would help them scalp profits.

SK Singh, an arbitrageur-jobber at SMC Global, says the normal decline at the beginning of the day was accentuated by panic selling."This caused shares to plunge repeatedly."

Initially, jobbers bought shares to trade off at high prices, but as price lines entered a freefall, they were forced to sell their picks at a loss, he says. "Jobbers and arbitrageurs who wrote options had it really tough in the last two days."

Only pure arbitrageurs made money on Monday and in the first half of Tuesday . Pure arbitrageurs are day traders who exploit price differentials between exchanges, cash and futures and other trade combinations. Market momentum and volumes, not stock prices, help this segment of traders eke out profits. Higher traded volumes in the futures & options segment helped pure arbitrageurs make money on Monday and early Tuesday .

But arbitrageurs who sought to make easy gains by selling Nifty put options (on hopes that the index would stay stable) lost big time in Monday's crash, after the prices of puts they had written soared by 1000 per cent and more overnight. This forced them to buy back puts sold earlier to counter parties at higher prices.

"Jobbers and arbitrageurs (who played the options market) seemed quite unsure on Tuesday...Pureplay arbitrageurs had a good trading day on Tuesday ," says Akshay Sharma, arbitrageur, OPJ Securities.

"We're not sure what will happen over the next few days... Some of us also foresee one more round of deep correction," cautions Sharma. "Markets will be very choppy over the next few days."