Vroom!!!

It had been one of the craziest weeks to start for a trader. After a very reassuring exit poll numbers on Friday last week, Monday this week started with a shock. The Gujarat state election result numbers swayed crazily between BJP and Congress early on. Markets took a deep jolt on open losing around 270 points on Nifty. Even deeper was the fear factor in the market. It was probably the low voter turnout and high use of “NOTA” (None of the above) as an option which lead to such a situation. The margins by which leads or wins were getting registered were pretty thin. This resulted in volatility in the number of leads for both the parties.

Anyways it stabilized soon and market got back to its course and closed at the highest point the very next day. Next day, for me was important, as I saw something unusual. One stock, which is unanimously liked by the market, Maruti, did something unusual. First, on a base of 9300 it was up ~6%, that was really something. Second, new strike opened up for trading till 10300. Third, stock options were witnessing very good volumes.

For a stock like Maruti, which is illiquid in cash and futures segment, option is something out of the question. But suddenly volume picked up across many near the money strikes. Undoubtedly such a sharp price move was going to attract volumes. But this was undoubtedly unusual. Next day again the stock continued its upmove reaching near 10k levels and volumes continued to build on options side. Few strikes which caught attention were 10k Call strike. The strike added 86k shares on first day and 180k on the next day. By far the largest build up of close to 3540 contracts. Also, 10100 to 10300 Call strikes had another 4700 contracts odd.

For a stock which had moved from 9k to 10k in two days, the writers surely had more say. Their risk was seriously high. So, I decided to join the wagon and bought 9700 Put. With markets near all time high and stock moving up so rapidly I thought it was worth the risk. Undoubtedly, the pricing was difficult, the stock moved so quickly that to trade it was also difficult. Obviously, it was learning for me.

The stock took a sharp beating as it broke down below 9900 and quickly lost another 200 bucks to reach near 9700. I squared off my position there. There is a large risk of illiquidity and pricing issues in such stock options when the movement in the underlying dries out. Also, with a truncated expiry week starting next week it would be not the best idea to hold it for long. Though on an RoI basis it was an average trade. But the challenges made in terms of pricing and execution was worth the whole effort.

Options market has this inherent thing that, whenever, price starts moving for a stock which is otherwise illiquid in the options segment, volumes come by. But this time it does not look like a place to seek volumes, but it’s become a place to set a view. Undoubtedly, Maruti, vroomed off in all possible ways.

Happy Trading.

Cheers!!!