Traders turn back on Bank stocks

Have Dalal Street traders turned bearish on banking stocks? Of late, traders are building short positions in banking stocks after holding on to their bullish bets in the sector in the past two months. Bank Nifty has underperformed CNX Nifty since the beginning of the year. Two derivative indicators are hinting at a pessimistic view on the sector.

Many traders are aggressively selling (or writing) call options of Bank Nifty between 19,200 and 20,000 strikes. The Bank Nifty closed at 18,469 on Tuesday.

This suggests these traders do not expect the index to cross these levels in the near-term. The implied volatility — a key aspect of options’ premium pricing — of 19200 strike rate of CNX Bank Nifty was at 21 on Tuesday compared with nearly 26 in the beginning of March, while open interest has increased to 79.9 times in the same duration. This shows traders are less optimistic on the Bank Nifty.

A trader would have made more than 42% in the last two trading sessions if he sold Bank Nifty 20,000 call of April series. Secondly, the premium costs of Bank Nifty puts between 17,200 and 17,800 have gone up in terms of time value of money. This indicates the cost of hedging these stocks has gone up — a sign of pessimism.