FII option bets hit record high: What is it signalling?

MUMBAI: Option sellers have piled on record cumulative bearish bets on indices and shares, signalling that extra ache is seemingly, earlier than issues get higher.

Marketwide open interest (OI) of calls exceeded the OI of places by Rs 90883 crore on Tuesday, when the benchmark Nifty fell 1.3% to 14721.

Open Interest measures merchants’ excellent purchase or promote positions. Since for each purchaser there is a vendor within the derivatives market, futures and choices are a zero sum sport, with revenue merely shifting from one pocket to a different.

Thus, when extra calls are bought than places, it means option sellers don’t count on the market to rise , enabling them to retain premiums for the calls paid by the consumers. Call consumers are bullish whereas put consumers are bearish.

Since option sellers face limitless loss and restricted revenue —by means of option premium— they’re thought of financially extra astute than option consumers, whose most loss is restricted to the premium paid and most revenue is limitless.

Amid the decision construct up analysts like Rohit Srivastava, founder, IndiaCharts, count on deeper cuts to 14578, which if damaged might drag the Nifty all the way down to 14300.

When extra places are bought than calls, it’s a bullish signal. The record open curiosity of marketwide places exceeding calls by worth was Rs 69708 crore on February 3, after which the Nifty surged to a record excessive of 15431.7 on February 16.

When extra places are bought than calls, the option sellers count on the market to rise enabling them to retain the premia paid by put consumers.