VIX jumps 64% on covering of short Nifty put options & squaring off of bullish bets
Foreign investors, considered to be the movers of the market, managed to offset some of their share losses by having purchased the very bets that HNIs and pro desks sold.
By Ram Sahgal, ET Bureau | Updated:
MUMBAI: Wealthy investors and proprietary brokers bore the fury of Monday’s crash as the selloff, triggered by global market fears, sent all their bets awry. Many derivative traders suffered severe losses as they rushed to cover these bets, jacking up volatility by a staggering 64%, its steepest daily rise in five years.
On the flip side, foreign investors, considered to be the movers of the market, managed to offset some of their share losses by having purchased the very bets that HNIs and pro desks sold, assuming the markets would not break below key 8300, 8200 and 8000 support levels on Nifty. However, the almost 6% market fall sorely belied the sellers’ hopes.
“It was mayhem out there as HNIs and some pro brokers rushed to close out their positions,” said Amit Gupta, head, derivatives research, ICICI Securities.
“Covering of short Nifty put options and liquidation of bullish Nifty and stock futures bets sent the India VIX soaring, and added to their losses while exacerbating the market fall.”
The jump in volatility pushed up the price of Nifty options which HNIs and pro brokers sold to foreign investors to stratospheric levels. This prompted the FIIs to square off their positions – sell back the options to the HNIs at a higher price than what they had purchased. Option sellers were left bleeding as the 8300 put rose by a provisional 745%, the 8200 put by 1,279% and the 8000 put 3,536% by the end of what some brokers dubbed “Black Monday.”
Apart from shorting options, HNIs and pro brokers confident of markets remaining above key support levels ahead of derivatives expiry this Thursday, were heavily long stock futures. Such was the optimism that HNIs trimmed their short Nifty futures bets – which could have offset their losses to some extent -- from 3. 1 lakh contracts two weeks ago, to 63,782 contracts on Friday, ETIG Database shows.
Hemant Nahata, head of derivatives, India Infoline, added that many HNIs and pro brokers would for at least “some time” stay away from “shorting options.”
On the flip side, foreign investors, considered to be the movers of the market, managed to offset some of their share losses by having purchased the very bets that HNIs and pro desks sold, assuming the markets would not break below key 8300, 8200 and 8000 support levels on Nifty. However, the almost 6% market fall sorely belied the sellers’ hopes.
“It was mayhem out there as HNIs and some pro brokers rushed to close out their positions,” said Amit Gupta, head, derivatives research, ICICI Securities.
“Covering of short Nifty put options and liquidation of bullish Nifty and stock futures bets sent the India VIX soaring, and added to their losses while exacerbating the market fall.”
The jump in volatility pushed up the price of Nifty options which HNIs and pro brokers sold to foreign investors to stratospheric levels. This prompted the FIIs to square off their positions – sell back the options to the HNIs at a higher price than what they had purchased. Option sellers were left bleeding as the 8300 put rose by a provisional 745%, the 8200 put by 1,279% and the 8000 put 3,536% by the end of what some brokers dubbed “Black Monday.”
Apart from shorting options, HNIs and pro brokers confident of markets remaining above key support levels ahead of derivatives expiry this Thursday, were heavily long stock futures. Such was the optimism that HNIs trimmed their short Nifty futures bets – which could have offset their losses to some extent -- from 3. 1 lakh contracts two weeks ago, to 63,782 contracts on Friday, ETIG Database shows.
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Hemant Nahata, head of derivatives, India Infoline, added that many HNIs and pro brokers would for at least “some time” stay away from “shorting options.”
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