MUMBAI: How to play in the InfosysBSE 0.75 %
stock ahead of its second quarter results? Market players are expecting
the stock to move in a narrow range and, hence, are selling both 'Call'
and 'Put' options to earn a premium if the stock does not show wild
swings.
"Writing both 'Put' and 'Call' is the most popular strategy being played in Infosys," said Siddharth Bhamre, head of equities, Angel Broking. "Narayana Murthy's return as Infosys chairman has built huge expectation, but the activity in the derivatives contracts in Infosys suggests there may not be much wild swing in the share price."
Since the stock is moving in a narrow range, a popular strategy among brokers is to write 'Put' options of around Rs 2,700 and 'Call' options of around Rs 3,300. Buying 'Put' is going short and 'Call' is going long on the counter. Writing is a strategy to sell both of them. Thereby as long as the stock remains in the range between Rs 2,700 and Rs 3,300, the options writers may earn a premium on them.
The share price of Infosys rose 2.83% on Wednesday to close at Rs 3,120. In the futures segment, the stock was last traded at Rs 3,111 and the open interest in the counter witnessed a rise of 6.4% on Wednesday.
Post the return of Narayana Murthy, markets are betting that the Infosys counter will move in a narrow range. Although, there has been some jump in open interest (OI) in the derivatives segment, market players say the implied volatility in the counter is not like the one seen during the past few quarters close to the results day. The second quarter results of Infosys will be announced on Friday.
"What Murthy's return could do to the Infosys counter this time is bring down volatility on the results day," said Yogesh Radhke, head of quantitative research, Edelweiss Financial. "The level of implied volatility, which is usually at 85-100 % close to the results day, is around 62% this time, which suggests that the stock could trade in a narrow range from its current price levels."
In the past three to four quarters, the share price of Infosys saw wild fluctuations of 10% and more. This also had a major impact on benchmark equity indices the Nifty and the Sensex.
"Writing both 'Put' and 'Call' is the most popular strategy being played in Infosys," said Siddharth Bhamre, head of equities, Angel Broking. "Narayana Murthy's return as Infosys chairman has built huge expectation, but the activity in the derivatives contracts in Infosys suggests there may not be much wild swing in the share price."
Since the stock is moving in a narrow range, a popular strategy among brokers is to write 'Put' options of around Rs 2,700 and 'Call' options of around Rs 3,300. Buying 'Put' is going short and 'Call' is going long on the counter. Writing is a strategy to sell both of them. Thereby as long as the stock remains in the range between Rs 2,700 and Rs 3,300, the options writers may earn a premium on them.
The share price of Infosys rose 2.83% on Wednesday to close at Rs 3,120. In the futures segment, the stock was last traded at Rs 3,111 and the open interest in the counter witnessed a rise of 6.4% on Wednesday.
Post the return of Narayana Murthy, markets are betting that the Infosys counter will move in a narrow range. Although, there has been some jump in open interest (OI) in the derivatives segment, market players say the implied volatility in the counter is not like the one seen during the past few quarters close to the results day. The second quarter results of Infosys will be announced on Friday.
"What Murthy's return could do to the Infosys counter this time is bring down volatility on the results day," said Yogesh Radhke, head of quantitative research, Edelweiss Financial. "The level of implied volatility, which is usually at 85-100 % close to the results day, is around 62% this time, which suggests that the stock could trade in a narrow range from its current price levels."
In the past three to four quarters, the share price of Infosys saw wild fluctuations of 10% and more. This also had a major impact on benchmark equity indices the Nifty and the Sensex.
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