“There is an opportunity to make money by selling the current month’s volumes (meaning volatility) and buying the September issue. In this spread strategy, traders use the premium they get by selling the current series to fund part of the cost of buying options in the next month,” said Girish Patil, director-derivatives at Antec Stockbroking.
The futures and options contracts for the August series will expire on the 26th while the September series will expire on the 30th of the following month.
Option sellers, who pocket premiums from buyers, prefer fewer trading days because of the value of time in the trading month—another key aspect of options pricing. The time value of options approaches the expiration of contracts, resulting in limited movement in options prices.
Selling Nifty 5500 year options in the August series and buying the same contract in the September series is a good strategy in this type of market, said Shailesh Kadam, AVP-derivatives, PINC Research.
“This strategy is betting that the Nifty will be range-bound and not move above 5500 in the August range, while the Andertone is positive next month.”
In the past one month, the Nifty has largely moved in a tight band between 5350 and 5450, resulting in the volatility index – a measure of traders’ expectations about near-term risks in the market – hovering in the 15-20% band, the lowest range since January 2008. This indicates that traders are close to a comfort level about the market.
Options traders have struggled to make money, of late, in the absence of a sharp move in the index, brokers said. “Volume sellers[options buyers]lost their money, while sellers did not have the courage to sell volume at such low levels,” said the head of derivatives at an institutional broking house. “So, unless there is a rapid movement, the spread of the calendar seems to be the best strategy,” he said.
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