Prop desks build bullish bets with complex strategies

1. Prop Desks Build Bullish Bets
with Complex Strategies

2. Contd..
Proprietary desks of brokers and some of their rich clients are mounting
aggressive bullish bets on the Nifty even as foreign institutions remain
cautious about the market prospects. These investors have created complex
strategies in Nifty options that could return as much as six times the
investments if the index rises to 8400 -or about 2.7% from the current levels.
One of the strategies they have built is the bull call ratio spread that involves
the simultaneous purchase and sale of call options at different strikes. In this
case, these investors have bought one lot of 8200 calls and sold two lots of
8400 calls. The sale of the higher strike calls is used to part fund the purchase
of the costlier 8200 call.
“The strategies of prop desks and their clients in Nifty call and put options
show they've turned sanguine since RBI trimmed interest rates last month
and believe the odds of the Fed hiking interest rates this year have fallen,“
said Hemant Nahata, derivatives head, India Infoline.

3. Contd..
From the sale of the two 8400 call option contracts, they earn Rs 70.This is used to
reduce the purchase . 35 from ` cost of 8200 call to ` . 105. The maximum profit in
this strategy is . 200 (the difference between the ` higher and lower strikes) and the
maximum loss is ` . 35 (the net debit) if the Nifty ends the current series at 8400.
“The belief is the Nifty could rise steadily from current levels of 8150 to 8400, but
not more. If this pans out, the trader can gross nearly six times on his investment of
` . 35,“ said Manoj Vayalar, derivatives head, Religare Capital Markets.
Since September 29 -when the Reserve Bank of India (RBI) surprised the market
with a higher-than-expected 50 basis points rate cut, the benchmark indices have
gained 5.5%. Traders hope the momentum will carry the Nifty to 8400 levels
though the undertone remains cau tious. Analysts said some of these bullish
strategies may be wound up before the September quarter results season starting
next week.

4. Contd..
The optimism that the markets will not fall has prompted some traders
to initiate the bear put spread. This strategy comprises purchase of a
7500 put for a provisional ` . 25 and sale of three 7300 puts for a
combined ` . 36. The maximum profit is ` . 200 (difference between
7500 and 7300), while the break even below which losses begin to
accumulate is 7233.4.
“We're sure that we will get to keep . 11 since the market is unlikely to
test ` 7500 in the current series. If it does, we make money on the 7500
put but we're sure the 7300 level won't be breached even then,“ said
Jitendra Panda, MD, Peerless Securities.

5. For details and bookings contact:-
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(Founder and C.E.O of Saxbee Consultants & Other-Mother
marketingandcommunicationconsultants.com)
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