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Stock options: Preferred instrument to trade in high volatility

ICICI Securities 04 Mar 2022

mmentary

As volatility across the globe rose significantly due to geopolitical uncertainty, sharp moves were there in stocks on both sides due to which playing a directional move is getting difficult. The dollar index moved above 97 levels whereas Brent crude moved to seven-year high levels due to fresh sanctions being imposed on Russia. Despite some negatives, FIIs has turned positive in the stock futures segment indicating they utilised the current fall to accumulate.

Major Option activity:

Outlook:

Due to higher volatility, focus has once again shifted to the stock option segment, which is relatively safe if we are on the buying side of the option. For instance, due to higher volatility, decline in option premiums are lower. If the stock moves in the same direction, appreciation is higher. Few above stock option has good liquidity and has seen good OI change. Overall long exposure of FIIs in the stock future segment rose to two-years high. On a net basis, FIIs are now almost 4 lakh contracts long in this segment. Hence, we feel there would be more stock specific action in the coming days. One can use the stock option segment as a preferred trading instrument till the time IVs are higher. We have already recommended a few stock option trades.

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