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Friday, Mar 01, 2002

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Uncertainty prevails; avoid fresh positions

B. Venkatesh

THE negative sentiment in the spot market rubbed off into the derivatives segment on Thursday, as most equity calls ended in the negative territory. With the market displaying high levels of volatility, dealers may do well to remain in cash for now. Those wanting to trade on volatility may, however, consider taking positions. Here are the highlights from the day's trading:

Equity options: Though Satyam fell sharply in the spot market, the March 300 calls, which are currently OTM by 33 points, clocked the highest volumes on that stock, with 458 contracts.

  • The immediate outlook on the stock appears uncertain. Besides, the options seem reasonably priced in terms of their implied volatility (vols). Trading opportunity does not exist, unless dealers are willing to buy long straddle.

  • The options on Reliance Industries also appear reasonably priced, given the historical vols on the stock. Traders may, hence, find it difficult to trade on vols on Reliance options.

  • The immediate outlook on HLL does not appear positive, notwithstanding the stock's rise in the spot market. Dealers may, hence, refrain from taking any position on HLL options.

    Index options: Despite the spot market going into a tailspin, the March 1200 calls, which are currently deep OTM, clocked the highest volumes in this segment with 307 contracts.

  • Dealers can consider buying the March 1200 calls, which cost 7.3 points at the day's close. A slow time-decay and lower implied vols on the option compared with the stock's historical vols benefits the buyer. Dealers would do well to keep a stop-loss limit on their long position.

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