'Astonishing' spike in Nifty 50 put option, premium shoots up 10x in minutes

Sudden movements skip many stop losses and traders end up having to absorb big losses to find an exit from their position.

There was another sharp price movement in the derivatives segment today. The premium of an at-the-money (ATM) put option shot up by almost 10x in a matter of minutes.

While such price movement, which have come to be called injections, have become common, they were usually found in less liquid options of Sensex and mid-cap Nifty. In today's instance, this price movement happened in a stable counter like Nifty 50.

Also read: These trades called ‘injections’ are wiping out crores of capital in minutes

The premium of Nifty 50 Put 22300 went from Rs 39.65 to Rs 250 in a minute candle and then shot up to Rs 392.25, pointed out trader Santosh Kumar Pasi, in a post on X.

"What was astonishing was that the spike happened in a stable counter like Nifty which is extremely rare," he told Moneycontrol.

Such sudden movements skip many stop losses and traders end up having to absorb big losses to find an exit from their position.

Pasi said, "This could have happened either due to fat finger error of an algo. But the most probable reason for this was the gamma effect."

Gamma is an option in greek that captures risk in a contract. For example, higher the gamma, more will be the change in delta with every price movement of the underlying. Delta captures how much an option's premium changes with the underlying's price.

Gamma effect is seen more in at-the-money contracts like today's put option.

Pasi, who is a option seller, said that last year he used to easily make money by option selling and spikes were once-in-an-year occurrence. But these days, with everyday expiry and almost four major spikes from mid February, it has become difficult to trade.

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He has already had a drawdown of 13 percent in capital. Pasi advises the only way to cope with this is reducing daily exposure while trading.

In an earlier interaction with Moneycontrol, trader Jitendra Jain, who gave these spikes the name "injections", said that these surges have started happening because of congestion, with too many players trading the same contracts at the same strikes. Therefore, when a stop loss hits, everyone tries to exit at the same time, and the price of the option shoots up to meet the demand. The name he gave since caught on and social-media posts often flag such price movements with #injection.