Mastering Derivatives: Characteristics of option vega

Last month in this column, we had discussed the sensitivity of option strikes to changes in volatility. Late last year, we had discussed how to create a synthetic long stock position using options. Stringing together both arguments, a reader wanted to know if a synthetic stock position will also be sensitive to changes in volatility. … Read more

F&O Strategy: Bull-call spread on Bajaj Auto

The stock of Bajaj Auto (₹3,914.45) rebounded from the support at ₹3,140 in early March and rallied. However, it faced a barrier at ₹3,900 and so, it has been charting a sideways trend over the past couple of months — it has been oscillating between ₹3,600 and ₹3,900. But a fortnight ago, the stock broke … Read more

F&O Strategy: Execute short strangle on Axis Bank

The stock of Axis Bank (₹730.75) gained last week and moved above a resistance at ₹700 and the price action indicates further rally from here. However, looking at a broader level, it can be observed that the scrip has been stuck in the range of ₹640-800 since early 2021 and has been struggling to establish … Read more

As markets turn bearish, traders migrate to options

With the market off its peak it hit purple patch since it peaked last October, investors and traders seem to have shifted their focus to options from the cash segment. Incidentally, relatively lower margin requirements for options as compared to futures, after the final phase of the peak margin rules took effect kicked in last … Read more

Mastering Derivatives: European options and house money effect

Trading European options exposes individuals to a behavioral bias called house money effect. This week, we define this bias and show how to moderate its effect. Capitals Vs Gains Suppose you started with a trading capital of one lakh six months ago and your capital has since grown to 1.5 lakh. You have three choices. … Read more

Primer: Explaining volatility and VIX

Those who trade in derivatives would have heard terms such as volatility and VIX. But a lot of people often use these terms interchangeably and incorrectly. So, let’s try to understand these terms. Volatility In simple terms, volatility can be thought of as the range of returns for any given underlying. In most cases, it … Read more

F&O Strategy: Consider buying call option on Adani Ports and SEZ

The stock of Adani Ports and SEZ (₹ 767.55) remains at a crucial level. The stock finds an immediate support at ₹ 705 and resistance at ₹ 811. It appears that the current rally in the stock may sustain. R&D pointers: The Adani Ports and SEZ shed open positions in the last few days along … Read more