Options data hints at rally before Budget

Options data hints at rally before Budget

Mumbai: Is the Street preparing for a pre-Budget rally? The change in the marketwide put-call option positioning seems to suggest so.

Whenever the value of the outstanding marketwide stock and index call options is higher than that of the outstanding stock and index put options by Rs 30,000 crore, the markets tended to have bottomed and hit new highs subsequently.

This happened on four occasions, the latest being on January 18, when the value of marketwide outstanding calls exceeded that of the marketwide puts by Rs 36,240 crore.

When there are more marketwide calls than puts, it means call sellers don’t expect markets to rise. If for any reason, the market turns against them, they are forced to cover their short call positions by buying them back, which provides more “steam to the rally”, said market strategist Rohit Srivastava, who has compiled the data.

On January 18, the market at the closing of 14,281.3, was down 2.5 per cent from its record high of 14,653.35 hit on January 13. On January 19, the Nifty rose 1.7 per cent to 14.521.15, recovering three-fifths of the fall from the record high.

“This is what would have happened on Tuesday, though the data won’t be out until late evening,” agreed Hormuz Maloo, director, AFco Investments.

On December 21, 2020, the market bottomed at 13,328, having tanked 432 points from its previous session. On this day, the value of outstanding calls exceeds that of the puts by Rs 31,253 crore. From this level, the Nifty rallied consistently to its all-time high on January 13, 2021.

Again on October 15, 2020, the Nifty bottomed after tanking 345 points from its intraday high to 11,680, with the marketwide calls being Rs 44,512 crore higher than marketwide puts. From here the market rose to a high of 12,019 three sessions later.

Similarly, on September 22 last year, Nifty bottomed at 11,153.65 at the close when the aforesaid call figure was 32,237 crore above that of the relevant put figure. From here the Nifty rallied 871 points to 12,025 on October 12.

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