It’s time to choose odd one out!

Recently my kid has kept me busy helping him solve puzzles. One of our common favorite is find the odd one out. Creating a link among three out of four options is quite easy. So in a case where there are multiple options to choose from and one of them looks different it becomes an easy selection or avoid.

Last time when I wrote to you, I mentioned how July series panned out and the rollovers that went by. While looking at that data, I found one thing which was standing out. Among the banking names, one name had a slightly different data set. While most of the banks were down atleast 10% during the series, this one was down just 5%. The rollovers were much more than the average. This clearly indicated that the stock had quite a bit of shorts which got rolled and the price had not reacted till now. Seemed to be a Short trade in making.

Well, to break the suspense the stock was SBI.

It’s been one of the best performing Nifty banking stock during July. While a part of me felt that the markets could bounce any time owing to the heavy short build up in the markets. The heavy Put build up at 11000 strike gave some ease in terms of some more downside which is still left. So, can SBI be the one that can help pull down Nifty to 11000 levels. Well, possible, it’s a heavy weight. Also, results were expected in the first week of August. So, trigger was also there. Clearly, I was trying to short one of the strongest name during a weak market. If the markets bounced or the results were extraordinarily good the stock would fly off and trigger Short Covering. Risk was undoubtedly high.

Clearly I had to bend on low risk strategies. The stock was near 340 with 320 and 300 Put strikes having decent build up on more than 10 lakh shares each. Clearly, break below 320 was necessary to trigger further pressure. So, picked up 300 Puts at near Inr 1.5/-. Nifty continued its downward spiral, this time contesting 11,000 Put holders in the first week of the series.

SBI results failed to enthuse the markets. The downward spiral aggravated post the numbers. Once the stock closed below 320 the long unwinding was going to further add to pressure. On Friday the stock skidded well below 320 and reached 307. The 300 Put jumped to Inr 7.5/-.

While the start of this series, seemed to be one where further Shorting seemed to be a clear no – no. But thanks to options where one can clearly take low risk – low cost bets and play out some shorts.

Happy Trading.

Cheers!!!