Is the timing apt to sell Infosys options?

Premium on options of the company hit record levels ahead of Q1 results

Traders are rushing to sell options contracts of Infosys whose options premium 'hit record levels ahead of the first quarter results. Analysts said Infosys' option premiums have spiked because many traders have been buying the creating positions in these contracts through various strategies. The company's shares were up 1.8% at Rs 2,546.95 at 12:40 pm.

 

Analysts said, implied volatilities (IVs) of Infosys' 2,100 puts were at about 90% and that of 3,000 calls were at about 80%. IVs, which measures traders' expectations of a sharp move in a stock or index, is a key aspect of put and call premium pricing. Traders, who create positions keeping in mind the IVs, essentially bet that there would be a sharp move in the stock or index either sides, unlike plain the vanilla traders who take a bet on direction.

 

Historically, Infosys shares have seen sharp moves on the results day. The aggressive purchase of Infosys' put and call options have been done on expectations of a sharp movement in the stock price. But, analysts now feel that the rise in the stock options' premiums has been overdone and that it may be time to write (sell) the contracts. A writer or seller of options pocket a premium. Option writers benefit when premiums fall, which is usually the case soon after the event (in this case, Infosys results)