Street signs: Option writers' mouse trap, Awfis space GMP at 20%, and more

Option writers caught in the mousetrap

Amid election uncertainty and sustained selling by overseas funds, the Indian markets are experiencing wild intraday swings. For instance, the National Stock Exchange Nifty 50 fluctuated nearly 400 points on Thursday, which was also the expiry day for Nifty weekly contracts. Consequently, several Nifty option contracts saw movements of more than 10x between their highs and lows that day. As a result, many option writers — those selling put or call options without any underlying positions and intending to buy them later at a lower rate — got trapped. For option writers, the loss can theoretically be unlimited, as they are forced to buy at any price to close the trade if the price rises. Several experts believe it is the individual traders who often get trapped, as their odds of winning against sophisticated algorithms and high-frequency traders are slim. Given the recent spike in volatility, brokers are advising their clients to avoid option writing or to seek an extra margin of safety.

Market mirage: FPI shorts reveal deceptive depths

Last week, a Bloomberg report on foreign portfolio investor (FPI) short positions reaching their highest point in 12 years caught everyone’s attention. However, a deeper analysis by Nimish Maheshwari, an independent analyst and co-founder of Beat The Street, shows that shorts are not as high as touted, given the recent change in the National Stock Exchange Nifty lot size. “In November 2023, the Nifty futures lot size was 75. Therefore, the total short-position gross exposure was about Rs 31,000 crore at a Nifty level of 19,133. Now, with the 83 per cent higher short position, the total short position gross exposure is about Rs 22,000 crore at a Nifty level of 22,300. This is significantly lower than what the narrative suggests and is not as ‘huge’ as it’s being made out to be,” he said in a note. Many see high FPI shorts as a sign of the market bottoming out. Unfortunately, this is not a tell-tale sign.

Flying high or free fall? Awfis Space IPO’s GMP sends market signals

Shares of Awfis Space Solutions, a co-working solutions provider, are trading at a grey market premium (GMP) of over 20 per cent ahead of its Rs 600 crore initial public offering (IPO) that opens on Wednesday. Market players say the recent good performance of listings and the rebound in the markets have buoyed sentiment towards IPOs. However, GMPs can quickly change if underlying market sentiment shifts. Awfis Space, backed by private equity firm ChrysCapital and ace investor Ashish Kacholia, is looking to issue new shares worth Rs 148 crore in the IPO, which is priced between Rs 364 and Rs 383 per share. The company will be valued at Rs 2,659 crore at the top end of the price band on a post-diluted basis.