Traders take combo bets as India Vix plunges

Mumbai: Smart derivatives traders have seized an opportunity thrown up by the year-to-date lowest volatility by initiating a long straddle on weekly Nifty options.

A long straddle is a market neutral strategy, whose profitability depends on market movement rather than on which direction it moves. It involves a trader purchasing a call and a put on the Nifty.

A call buyer is bullish while a put buyer is bearish.


The straddle, initiated Friday, involved traders buying a 15,800 call and put, whose combined value was just 1%, against the normal 2.5-3%, thanks to fear gauge India Vix closing at 14.1, the lowest since January 1 and way below the average close of 21.4 this year.

The Vix is a measure of trader expectations of price swings, or implied volatility. The lower the reading, the more bullish the set up, while a high reading signals caution.

At closing rates, the combined cost of the 15,800 straddle was ₹177 a share — 75 shares make one Nifty contract. The buyers stand to gain if the market moves sharply above or below 15,800, with the upper breakeven point at 15,977 and the lower breakeven at 15,623.

“The same strategy was followed in the Bank Nifty last week by FIIs who purchased a 35,500 call and put on that index and raked it in a day before expiry on June 10,” said Siddarth Bhamre, director, InCred.