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Preferred instrument to ride high volatility ahead of results

ICICI Securities 11 Jan 2022

Commentary

After a choppy December series, the Nifty maintained its positive stance in the January series and managed to test its highest Call base of 18000 twice in the current month. FIIs turned positive after the sharp sell-off in December and the volatility index remained elevated ahead of the Budget 2022 and result season.

Major Stock OI activity (Change):

Stock options activity has increased significantly during the January series ahead of results and broader market participation. Midcap and Small Cap indices have shown significant resilience and outperformed the Nifty in the recent market move.

Outlook:

Volatility remained high for the December series where the Nifty witnessed a move on both sides. Average premium turnover in stock option segment for the December series was Rs 2826 crore whereas in the January series it is more than | 3400 crore till now. This is clearly showing that turnover in the stock option segment has risen and traders are preferring this segment due to high liquidity, lower investment and expectations of higher returns (as underlying stock volatility is still higher). We feel that for coming weeks, traders should focus on the stock option segment as due to result season, stock specific high volatility may continue and stock options provides avenues of higher returns with limited investment amid proper stop loss.

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