Street fails to cash in on Infy, Sun Pharma play

Traders typically build up positions in the futures & options segment a day before a key event, such as result announcements, Budget, etc

Infosys shares gained the most in two-and-a-half years, while that of Sun Pharma posted the biggest-ever decline on Tuesday. While July series put and call options in the two counters saw huge fluctuations, only a few on the Street managed to make a killing. The trading activity in Infosys and Sun Pharma, both in the cash and derivatives, remained muted a day earlier. Cash market turnover in Infosys at Rs 236 crore on Monday was half this year’s average daily turnover, while Sun Pharma witnessed a turnover of only Rs 139 crore - less than a third compared to 2015’s daily average of Rs 520 crore. Open interest, too, in the derivatives segment was below the yearly average.

Traders typically build up positions in the futures & options (F&O) segment a day before an event, such as result announcements, Budget or other key macro events. Most trading strategies ahead of such events are formed to benefit from sharp movements in either direction.

 

Shares of Infosys on Tuesday closed at Rs 1,116.35 apiece on the National Stock Exchange (NSE), up 11.5 per cent from the previous close - the most since January 2013 when the company raised full-year sales forecast. Call options with strike price of Rs 1,020 jumped five times, with put option with the same strike price dropped 95 per cent. On the contrary, shares of Sun Pharma closed at Rs 805 apiece on the NSE, down 15 per cent, the most since listing after the company issued a full-year profit warning. July series call with the strike price of Rs 800 fell 78 per cent, while put with the same strike price jumped a staggering 62 times. Such a sharp move is a dream for savvy option traders. However, most were caught off-guard this time around going by the low trading volumes.

“On the one hand, Infosys revising its guidance upwards came as a positive surprise but on the other, Sun Pharma guidance cut came as a shocker. Neither the F&O nor the cash segment saw any major pre-emptive position build-up indicating clearly that the market was taken off-guard by the sharp share price movements in both the stocks,” said Yogesh Radke, head (quantitative research) at Edelweiss Financial Securities.

 

After market hours on Monday, Sun Pharma had announced its 2015-16 profitability would be adversely impacted due to costs associated to the merger with Ranbaxy Laboratories. Meanwhile, Infosys reported better-than-expected June quarter earnings and raised its dollar-denominated revenue estimates for the year.

“There wasn’t much action in Sun Pharma and Infosys before today. A lot of people were caught unawares. There was some long formation in Infosys. People were anticipating the stock to go up by five per cent, but the quantum of jump was much bigger,” said Siddharth Bhamre, head of equity derivatives and technical at Angel Broking.

Interestingly, Infosys shares had declined by five per cent after it announced its March 2015 quarter results and had gained five per cent on December 2014 and September 2014 quarter earnings day.