A day after incurring a Rs 78-lakh loss in a trade gone wrong in Sensex call options on September 8, Dubai-based trader Soumendra Jena posted on his X and Instagram accounts, pictures of him alongside a Lamborghini in a Dubai showroom.
“Bad freak trade day, and mood ducked but the delivery was due, Job done finally, project over,” he wrote on X, formerly Twitter.
While the tweet and some other pictures give the impression that Jena bought a new Lamborghini, this could not be independently verified by Moneycontrol.
On September 8, a freak trade in Sensex call options of 67,000 strike sent the premium shooting from Rs 4.30 to Rs 209 and then falling back to Rs 5 within seconds.
Broking firm FYERS, through which Jena had placed the order, maintains that the freak trade happened because Jena had placed a stop loss market trade, and not a stop loss limit trade as the trader has claimed in his social media posts.
“It was an order placed by the trader manually through the app, and it was a stop loss market order, which is allowed by the BSE; it is not an error from our end” FYERS Chief Executive Officer Tejas Khoday told Moneycontrol over phone on September 10. “We have the trade logs to back it up.”
Khoday said while the buy orders got hit all the way up to Rs 209, the average price at which they got executed was a little below Rs 40.
Jena placed a buy order for around 285,000 Sensex calls of 67,000 strike, the premiums of which were quoted at Rs 4.30 when the order was triggered. This strike was an out-of-money (OTM) contract, as it is called in market parlance to describe contracts with strike prices far away from the prevailing market price.
In general, there is massive interest in OTM option contracts on expiry day because they are available cheap and the returns can be huge if by any change the underlying (index/stock) moves sharply.
“Since the trader did not square off his position after the erroneous trade, we had to square it off from our end to comply with the risk-management norms,” Khoday said.
‘His error’
In his posts, Jena asked FYERS for a refund, saying was an error from its (FYERS’s) end as he had placed a stop-loss limit order.
Jena did not respond to repeated requests from Moneycontrol for his version of the event. We will update this story when we hear from him.
A stop-loss order is one which gets triggered when the price exceeds or falls below a pre-defined price. In a stop loss limit order, after the price is triggered, the trader’s software will send out buy or sell orders till another price limit.
Say a stock is quoting at Rs 50 and a trader wants to buy 10,000 shares but only after it exceeds Rs 55. If the trader wants to place a stop loss limit order, they may specify that the order be executed up to a limit price of Rs 60. If there are sell orders for 10,000 shares between Rs 55 and Rs 60, then the entire order will be executed. But if there are sell orders for only 3,500 between Rs 55 and 60 price range, and the remaining sell orders are beyond Rs 60, then the buyer will get only 3,500 shares.
If it is a stop loss market order, the trader’s software will keep picking up all the sell orders in the system above Rs 55 till the entire buy order of 10,000 shares is executed.
With most derivatives traders using algorithmic strategies, any erroneous order ends up amplifying the price swing as rival algos try to benefit from the error.
On September 8, something similar appears to have happened in the Sensex options of 67,000 strike, as sell orders in the system all the way from Rs 4.30 up to Rs 209 were snapped up.
The NSE had discontinued the stop loss market order in September 2021 following many instances of erroneous orders by traders.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
