Wild swing in Nifty Bank reignites chatter on manipulation of underlying stocks

Similar volatility was observed on April 18, when the premium of a Nifty 50 Put Option 22300 escalated from Rs 39.65 to Rs 250 nearly instantaneously.

Traders continue to get wrongfooted by sudden spikes in weekly options contracts on expiry days, sparking chatter that some players with deep pockets may be manipulating the stocks that form the indices.

On July 15, the market was trading steady till noon when suddenly there was a surge in the Nifty Bank and Bankex indices. This caused prices of put options to soar, triggering stop losses for many put sellers and causing losses.

Kirubakaran Rajendran, derivatives trader and Founder of Squareoffbots.com, wrote on X, “HDFC Bank and ICICI Bank, which together contribute 50 percent weightage to the index, dropped just 1 percent, causing Bank Nifty and Bankex to fall more than 300 points in a fraction of a second. This made option premiums shoot up drastically and then cool off in the next few seconds after hitting stop losses for all traders.”

During this period, Bankex dropped from 60,300 to 60,000, a 0.5 percent downmove. The out-of-the-money (OTM) put option at 59,500, which was 800 points away from the spot price, moved from Rs 10 to Rs 100.

This highlights the issue of manipulation in index heavyweight stocks leading to sharp spikes in options prices and possible institutional play in hunting of stop losses.

“How can a 0.5% down move in the index lead to a 1000% move in option premiums? Many traders are actively trading options, especially on expiry days. These traders, once they take a short position, place a stop loss into the system away from their entry point. For instance, if someone shorted an option at Rs 20, they might set a stop loss buy order at Rs 40, which is 100% away from their entry level, giving enough room for volatility to go against them,” noted Rajendran.

Read more: Wild Nifty swings on weekly expiry day spark chatter of manipulation by HFT cartel

“But on days like today, their stop loss will get hit easily as the premium moved from Rs 10 to Rs 100 in a short span of time,” he added.
Charts below show a significant drop in both Bank Nifty and Bankex at noon on July 15.

Also read: Sudden surge in FinNifty put options raise alarms, premiums spike up to 20x in a minute

Sharp move in Index Heavyweight rigging options prices

“If we check what caused the index to drop significantly in a few minutes, it is HDFC Bank and ICICI Bank that contributed to the maximum fall. Both these stocks together have a weightage of more than 50%. So, if these stocks drop just 1%, the index can fall 300 points,” Rajendran explained in a conversation with Moneycontrol.

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