Large derivatives positions show traders expecting stability, no major swings post election results

IVs are expected to fall post-election results

Benchmark indices Sensex and Nifty fell on May 30, the day of the NSE index’s monthly derivatives expiry. Nifty dropped 216 points or 0.95 percent, settling at 22,488.65. With just a few days left before the election results, options and futures data reveal that the largest positions in the Nifty June series are short straddles at 23,000, currently offering a credit of approximately Rs 1,150.

“This signals that these players anticipate the Nifty will not experience significant swings in either direction and expect the markets to stabilise even if there is a gap of 500-700 points on either side,” said Rahul Ghose, CEO of Hedged.in.

He noted that the 23,000 short straddles are being hedged by FIIs, HNIs, and larger players through 22,000 put options and 24,000 call options. “What is interesting is that these hedges are being established not only for the June expiry but also for the July expiration, with July 22,000 PEs and July 24,000 CEs,” added Ghose.

IV may fall post-election results, but volatility expected to rise in early July

The latest data on July hedges suggests that after the initial reaction to the election results and a potential drop in implied volatility (IV), major players anticipate that volatility will increase again in the second half of June and continue into July, Ghose said.

Bank Nifty

Regarding Bank Nifty, Ghose noted that the data aligns with Nifty's indications, with slightly more downside than upside. Bank Nifty has short straddles created similarly to Nifty, but intriguingly at around the 48,000 mark, which is below the current level. The banking index ended up 0.37 percent on May 30 at 48,682.

“The data suggests that significant players anticipate a range between 47,000 on the downside and 50,000 on the upside,” said Ghose.

Current market to see rise in VIX

“Historically, the VIX has hovered around 30 during major election results, so even though the markets appear to be consolidating around 23,000 (Nifty) currently, the VIX is likely to trend in that direction,” Ghose added.

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