3 reasons OTM Options outperform in low volatility

In the majority of 2023, volatility has remained relatively low in the financial markets, resulting in slower overall price movements.

However, this low volatility environment presents both challenges and opportunities for options traders. One of the key challenges is that the premium of an option decreases over time. This means that if there is no significant movement in the underlying stock or index, options traders in long positions may incur losses due to the time decay of the option premium.

On the flip side, there are advantages to trading options in a low volatility environment. All options, regardless of their strike price and type (Call or Put), tend to trade at lower premiums. This translates to a lower initial investment required to establish a long position in an option.

To make the most of the opportunities presented by low volatility and slower price movements, traders can focus on selecting the right strike prices. Options can be categorized into three main types based on their strike prices:

1. ATM (At the Money): The strike price is close to the current market price.

2. OTM (Out of the Money): Call options have a strike price higher than the current market price, while Put options have a strike price lower than the current market price.

3. ITM (In the Money): Call options have a strike price lower than the current market price, while Put options have a strike price higher than the current market price.

Now, let's delve into the reasons why Out of the Money (OTM) options can outperform in a low volatility environment:

Reason #1: Lower Investment: OTM options are less attractive because they are essentially options to buy higher (Call) or sell lower (Put) than the current market price. However, this characteristic makes them more affordable, especially in an already low premium environment. The lower investment required to establish positions in OTM options is one of the primary factors contributing to their outperformance.

Reason #2: Higher Returns on Investment:While the price movements are similar for all types of options, ITM options will experience a higher increase in premium than ATM options for a given favorable price move. Similarly, ATM options will see a higher premium increase compared to OTM options. When focusing on the returns on investment (ROI), calculated as Premium Profit / Premium * 100, OTM options tend to shine.

Reason #3: Lower Absolute Loss: OTM options have lower intrinsic value due to their distant strike prices, which means there is less to lose. Consequently, sticking to a single position in one stock or index will result in lower potential losses, making it easier to exit if needed.

In summary, it's the combination of offering higher returns, affordability in terms of entry and exit, and lower potential losses that makes OTM options an attractive choice for trading in a low-volatility market.

Shubham Agarwal is the CEO & Head of Research at Quantsapp Pvt. Ltd. He has extensive experience in various forms of market research and programming in multiple programming languages. Prior to his current role, Shubham served as the Head of Quantitative, Technical & Derivatives Research at Motilal Oswal and as a Technical Analyst at JM Financial.

Valiant Laboratories IPO GMP

GQG Partners Invests Rs 1,527 Crore in IDFC First Bank; HDFC Mutual Fund Acquires 1.41% Stake in Five Star Business Finance

GQG Partners, an asset management firm based in Fort Lauderdale, has acquired a 2.6 percent equity stake in IDFC First Bank, a private sector lender, through open market transactions on September 1.

GQG Partners, founded by Rajiv Jain, purchased this stake in the bank through two funds. The GQG Partners Emerging Markets Equity Fund acquired 6.38 crore equity shares, while the Goldman Sachs Trust II-Goldman Sachs GQG Partners International Opportunities Fund acquired 10.77 crore shares, as per bulk deals data available on the BSE.

These shares represent 2.6 percent of the total paid-up equity of the private lender and were purchased at an average price of Rs 89 per share, amounting to a total of Rs 1,527.26 crore.

In the same transaction, Cloverdell Investment, owned by global private equity firm Warburg Pincus, sold 27.87 crore shares, equivalent to a 4.2 percent shareholding in the bank, at the same average price. The stake sale by Cloverdell was valued at Rs 2,480.34 crore.

As of June 2023, Cloverdell held a 7.12 percent stake, representing 47.17 crore shares, in IDFC First Bank. Despite settling Friday's trade with a modest 0.11 percent gain at Rs 93.44 on the BSE, the stock has been on an upward trajectory, recording gains in 18 out of the last 20 weeks and achieving a remarkable 73 percent increase during that period.

In another development, Five-Star Business Finance garnered attention on Friday as its stock fell by 5.89 percent to Rs 727.80 following a significant stake sale by foreign investors.

Foreign investors, including Norwest Venture Partners X - Mauritius, Matrix Partners India Investment Holdings II LLC, and TPG Asia VII SF Pte Ltd, collectively sold 2.55 crore shares, equivalent to 8.75 percent of the total paid-up equity, of the mortgage lender. The stake sale amounted to Rs 1,862.86 crore.

HDFC Mutual Fund was among the buyers of these shares, with HTCL - HDFC Mid - Cap Opportunities Fund acquiring 41.19 lakh shares in Five-Star Business at an average price of Rs 730 per share, totaling Rs 300.7 crore.

Nifty Telegram Tips

Check the Latest IPO and GMP

Navigating Market Highs: A Guide to Avoiding 10 Common Pitfalls

Amidst the fervor of soaring markets, it's crucial to balance optimism with patience, risk awareness, and avoiding greed. As the collective belief in "This time it's different" gains momentum, staying grounded becomes paramount. In this euphoric atmosphere, news anchors sport "Nifty - 21000" shirts, and Nasdaq teeters on the brink of a historic high. However, maintaining a measured perspective is essential, especially for those who've experienced the ebbs and flows of the market.

With over three decades in the market, I've weathered booms, busts, scams, and crises. As a fund manager, clients often question my cautious approach during market peaks. My response offers two clear options: retrieve your funds or practice patience. Despite pressure to deploy capital aggressively, my investment philosophy remains steadfast.

While I personally remain fully invested (leveraged at 120 percent), a sense of trepidation lingers. Socrates' wisdom, "Fools are always confident, and the wise are always in doubt," resonates, reminding me to balance bullish hopes with prudent caution. This blend of optimism and realism has contributed to our portfolios outperforming with stability over the long term.

Here are the 10 key lessons I've cultivated over the years to shape my investment approach:

1. Be Bullish, Not Foolish: 
Long-term market progress is rooted in innovation, technology, and opportunities. Embrace a perma-bull stance like Rakesh Jhunjhunwala's, but be wary of becoming a pawn to market narratives during euphoric peaks.

2. Breakout Stock Traps:
Be cautious of breakouts driven by hype. While fundamentals drive long-term success, short-term spikes are often manipulated by insiders. Beware of stocks pushed into the spotlight for gains.

3. Estimate Skepticism
Challenge analyst estimates, as they often miss the mark. Focus on valuation, free cash flow, and management intent for sound investment choices.

4. Interpreting Data
Market reactions to data can be counterintuitive. Trust accurate data over convenient interpretations; time will unveil the truth.

5. Future Value Evaluation
Evaluate future promises carefully. Investment decisions should be anchored in valuation, cash flow, and management vision, rather than ephemeral narratives.

6. Overcoming FOMO
Resist the impulse to buy into trending stocks fueled by FOMO. Patience yields better entry points, even for established giants like HDFC or Bajaj.

7. Avoiding Recency Bias
Remember past market trends, like the rise and fall of Pentafour Software and DSQ. Past performance doesn't dictate future outcomes.

8. Herd Mentality Warnings
Beware of crowded trades driven by influencers. Overcrowded sectors often lead to disappointing results, akin to the DotCom bubble or housing crisis.

9. Prioritizing Quality
Avoid favoring penny stocks over established players. Respectable, fairly priced stocks offer better odds than risky alternatives.

10. Objective Evaluation
Avoid emotional attachment to stocks or promoters. Remain rational, even if a stock has performed well in the past.

Bonus: Value Over Price
Invest in quality over low-priced stocks. Focus on substance, not shortcuts, to build a solid portfolio.

By mastering these principles, you'll navigate market waves with confidence and compound wealth wisely. Remember, compounding is indeed the eighth wonder. (Opinions expressed are my own and not reflective of this publication.

highly accurate banknifty calls

Nifty at 20,000 by December? This Elliot Wave analyst believes so

After a disconnect earlier in the year, Indian markets have started aligning with global markets and are expected to move up, founder of India Charts, a financial services firm, Rohit Srivastava has said, adding he expects the Nifty to hit 20,000 by December end."The US and European markets started to recover from January but Indian markets were disconnected due to the Adani-Hindenburg fiasco. That is now behind us and markets are starting to move up," Srivastava told Moneycontrol on June 2.

He was referring to a report by American short-seller Hindenburg Research in late January that accused the Adani group of stock manipulation and other irregularities. The Indian conglomerate denied the charges but the report triggered a rout in group companies' shares, which have since stabilized. The benchmark Nifty50 has recovered more than 9 percent from the March lows to 18,534 now. The Sensex has gained close to 8.5 percent during the period.

"In March, we also had the highest-ever short position build-up by foreign institutional investors. Most of those positions have been covered now. So my sense is that markets bottomed out in March," Srivastava, who specializes in  Elliot Wave analysis, said. Nifty earnings per share (EPS) for the March quarter came in at Rs 233, 5-6 percent higher than the street's estimates. It was up 14 percent sequentially and 13 percent year-on-year.

Banking & financial services, autos, and metals space performed better than expected, while the rest of the sectors were broadly in line."Be it economic growth or earnings growth, we have done better than most parts of the world," said Srivastava. India's Q4 GDP surprised on the upside at 6.1 percent against an estimate of 5 percent. As India aligns with markets globally, the Nifty could hit 20,000 by December-end and the Nifty Bank scale the coveted 50,000 mark, he said.

"It was a one-and-a-half-year-long consolidation phase, which I would call a clean-up phase. From March onwards, we are seeing pretty strong breath. So this should be a continued bull run for the rest of 2023," he said. On June 2, Indian equity benchmarks closed in the green, with the Sensex up 118 points at 62,547 and the Nifty gaining 46 points to close at 18,534.

Open Online Demat Account

Top 10 Factors that affect the Stock Market on Monday

Bulls kept charging the markets throughout the truncated week that ended April 7, pushing the benchmark indices to sustain their rally. A host of reasons such as higher-than-expected PMI manufacturing data, monthly auto sales numbers, provisional Q4FY23 numbers from banks and NBFCs, FII inflow, and the RBI's surprise pause in interest rate hike with upward revision in growth forecast to 6.5 percent from 6.4 percent aided the surge.

The BSE Sensex climbed 841 points or 1.4 percent to 59,833, and the Nifty50 rose 239 points or 1.4 percent to 17,599, supported by banking and financial services, auto, pharma, and infrastructure stocks.

The broader markets also traded higher with the Nifty Midcap 100 and Smallcap 100 indices gaining 1 percent and 2 percent.

After yet another encouraging week, the momentum is expected to continue along with some volatility in the holiday-shortened week beginning April 10 with focus on corporate earnings, inflation data, global news flows, and FOMC minutes, experts said. 

1) Corporate Earnings

The corporate earnings season for the March FY23 quarter will be kicked off by index heavyweights Infosys on April 13, Tata Consultancy Services on April 12, and HDFC Bank on April 15.

2) CPI Inflation

The consumer price inflation, which measures the change in prices of a basket of goods and services, is likely to drop below the 6 percent mark in March on April 12, with moderation in food inflation, against 6.4 percent in the previous month, while core inflation is likely to be sticky around 5.9-6 percent.

3) US Inflation and FOMC Minutes

On the global front, investors will look for cues from US inflation numbers and FOMC minutes scheduled to be released on April 12. Overall, the inflation is expected to moderate further to around 5.3 percent in March against 6 percent in the previous month, while the core inflation is likely to be steady at around 5.5 percent, as per the forecast available on Trading Economics.

4) Global Economic Data Points

5) FII Flow

The consistent FII inflow due to the falling US dollar index and bond yields also aided the markets and experts believe the flow is expected to continue given the hope that Federal Reserve may consider a pause in interest rate hike cycle sooner than later.

6) Oil Prices

Crude oil prices reached to a month's high, with international benchmark Brent crude futures rising to over $85 a barrel, from $79.77 on a week-on-week basis and WTI crude climbing from $75.67 to $80.46 a barrel in the same period, after a surprise OPEC+ output cuts and more-than-expected draw in US oil stocks. But the gains were capped towards the end of week after the weak US economic data raised fears over demand outlook.

7) Technical View

The Nifty has formed bullish candlestick pattern on the weekly scale, with making higher top higher bottom for second consecutive week, and the momentum indicator RSI (relative strength index) giving a nice positive crossover. Also the index climbed back above the 50-week EMA (exponential moving average - 17,426), which is another positive sign.

8) F&O Cues

The weekly Option data indicated that the 17,600 is expected to be a crucial level for the next direction of Nifty50, where we have seen maximum Call as well as Put open interest. Further, the index may find strong resistance around 17,600-17,800 area, whereas 17,500 is expected to be near-term support followed by crucial support at 17,000 levels.

9) India VIX

The volatility cooled down considerably in the last couple of weeks, with the India VIX fell by 8.8 percent for the passing week to 11.79, the lowest weekly closing level since July 2021, from 12.93 levels last week.

10) Corporate Action

Schaeffler India, Britannia Industries, Varun Beverages, Visaka Industries, Edelweiss Financial Services, and Goodluck India will trade ex-dividend, while Emami will turn ex-buyback in the coming week.

Best Telegram Channel for Nifty Options

Nifty closes above 18,600 for the first time, next hurdle 18,700

The Nifty hit another high to close above 18,600 for the first time on November 29, extending the uptrend to the sixth consecutive session supported by positive global cues and buying in FMCG, metal and pharma stocks.

The Bank Nifty opened lower at 42,959, which was also the day's low. After some volatile moves, the index closed 33 points higher at 43,053. The banking index formed a small-bodied bullish candle on daily frame with a bigger upper shadow. It has to hold above 42,750 to make an up move towards 43,339 and 43,500, whereas supports are placed at 42,750 and 42,500 levels, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

The broader market, however, saw profit booking, with the Nifty midcap 50, midcap 100 and smallcap 100 indices declining half a percent each. On the options front, the maximum Call open interest was at 19,000 strike followed by 20,000 strike, with Call writing at 18,800 strike then 18,700 strike. The maximum Put open interest was seen at 18,000 strike followed by 17,000 strike, with Put writing at 18,600 strike then 18,500 strike.

After opening flat at 18,552, which was also the day's low, the index traded higher for the rest of the day. It hit a new high of 18,678 and closed 55 points higher than the previous day at 18,618. The index has formed a bullish candle on the daily charts, making higher highs for the fifth straight session.

"The market is consistently holding higher high and higher low formation which is broadly positive. Hence the support has now shifted to 18,550 from 18,450," Shrikant Chouhan, Head of Equity Research ( Retail) at Kotak Securities said.
As long as the index trades above 18,550, the uptrend will continue. The market can move to 18,750-18,800, the expert said.

The data indicates that in near term, the Nifty may trade in range of 18,400 to 18,800. India VIX was up by 0.36 percent to 13.62 levels, but overall it has been cooling off for the last nine weeks and supporting the bulls.

Stock Market Today

5 factors that will keep traders busy

After taking a breather in the previous week, the market resumed its uptrend and ended the week at a record closing high with a 1 percent gain on November 25, following an up-move in global counterparts amid rising hope that the Federal Reserve may slow down the pace of rate hikes in the upcoming policy meetings. The declining oil prices, buying by FIIs, and falling US bond yields, too, lifted the sentiment.

The BSE Sensex rallied more than 600 points to 62,294 and the Nifty50 jumped over 200 points to 18,513, while the broader markets were also in action after recent consolidation, with the Nifty Midcap 100 and Smallcap 100 indices gaining more than 2 percent each.

Auto, banks, technology, infrastructure, and oil and gas stocks supported the market, whereas power and realty stocks were under pressure.

In the coming week, too, the momentum along with consolidation is expected to sustain, with the Nifty likely hitting its intraday record high of 18,604, with focus on monthly auto sales numbers and second quarter GDP data on the domestic front, and global cues, experts said. The Bank Nifty as well as the BSE Sensex reclaimed their previous tops.

"Going ahead, the lack of strong fundamental triggers will limit the upside, keeping the market volatile in the short term. The Fed Chair's speech, scheduled for the next week, and the release of other significant macroeconomic data will influence the market's future trajectory," Vinod Nair, Head of Research at Geojit Financial services, said.

1) Quarterly GDP Numbers
The quarterly economic growth rate scheduled to be released on coming Wednesday is the key factor to watch out for next week. Most experts expect the economy to grow more than 6 percent in the September FY23 ended quarter (Q2CY22), lower compared to a growth rate of 13.5 percent recorded in the previous quarter (on a low base due to Covid-led lockdown in Q1FY22), supported by pent-up demand and economic activity normalization.

2) November Auto Sales
Monthly auto sales numbers scheduled to be released in the latter part of next week will also be watched. Commercial vehicle demand momentum is expected to continue in November, while the passenger vehicle sales are likely to be supported by improving semiconductor supply, experts said, but the sustainability of demand for two-wheeler post-festive season is a key to watch.

3) Oil Prices
The correction in oil prices was one of the reasons for strengthening market sentiment last week as it raises hope for ease in inflation and fiscal deficit concerns along with improving margin pressure for corporates. Also, the RBI may heave a sigh of relief as the rate hike pace may be slowed down, experts said.

4) Global Economic Data Points
Investors will closely watch the second estimates for the third quarter (CY22) US GDP, US unemployment rate for November, and monthly manufacturing PMI data due next week.

5) FII Flow
Healthy buying by foreign investors in November seems to have raised the confidence of the market. Experts largely feel the flow is expected to continue in the coming weeks with the fall in the US dollar index, and bond yields and given the India is the fastest-growing economy in the world.

Bank Nifty Price, Nifty Stocks, Nifty Option, Bank Nifty Option Price, Options Stock, Equity Sensex