MUMBAI: Savvy derivatives traders made a killing last week by building short positions through put options in technology shares such as Infosys, Wipro, and HCL Tech. These traders placed their bets anticipating that technology companies will deliver weak results, after TCS earnings initially disappointed the market on April 16. Put option prices — or the premium — in technology shares have surged 300% in a week. The underlying stocks fell 13% in the cash market during this period as Q4 performance of several key technology companies failed to meet street expectations. (Put option buyers get an option to sell their assets at an agreed price on a particular date.) “Traders have made a killing as option prices have surged about 3-times over the past one week,” said Chandan Taparia, derivative analyst at Anand Rathi Securities. “We have also seen liquidation of long positions in technology shares, which added further pressure in the sector. We expect this current weakness to remain till expiry of F&O segment. However, one can expect some recovery in the new F&O series starting next month,” Taparia added. The F&Q expiry of April series is scheduled on Thurday. Infosys put option of 2,100 strike price, which was quoted atRs 28.75 about a week back (April 17), has surged 280% to Rs 109.45 on Friday (April 24), while Infosys put option of 2,000 strike price, quoted at Rs 11.00, gained 234% toRs 36.80 over the same period. However, shares of Infosys have fallen 8.5% during this time. “People have made big money by initiating options strategies such as straddle (where one buys both put and a call option of same strike price) ahead of Infosys results,” said Hemant Nahata, derivatives analyst at IIFL. “Analysts were anticipating disappointing results from technology companies on account of cross currency headwinds.” Wipro put option of 600 strike price which was quoted at Rs 22.10 about a week back shot up 194% to Rs 65.05 on Friday, while Wipro put option of 550 strike price which was quoted at Rs 3.75 surged 748% to Rs 31.80 during the same period. Over the week, shares of Wipro fell 13%. Smart traders sensed an opportunity in technology shares soon after TCS announced the Q4 numbers: it showed one of the slowest quarter-on-quarter (QoQ) revenue growth in the past few years. “We believe the correction in stock prices reflects concerns around growth slowdown in FY16, and potential miss on expectations in the coming quarters. In the past 2-months, stocks have corrected on concerns around currency drag,” said Parag Gupta, analyst at Morgan Stanley. HCL Tech put option of 950 strike price which was quoted atRs 35.45 about a week back has rallied 58% to Rs 56.20 on Friday. Shares of HCL Tech has fallen 4.5% over this period. “Technology earnings probably will not be smooth one way up going ahead. IT companies are now getting question mark,” said Jyotivardhan Jaipuria, head of research, Bank of America – Merrill Lynch.
Asmaa Mubita is a Kenyan journalist of international repute with over fifteen years of experience in broadcast journalism. Asmaa Mubita began his journalism career at the Kenyan state broadcaster (KBC) and later worked at the KTN owned by the Standard Group and Citizen Television, the flagship brand of Royal Media Services. These exploits together with his reporting experience with the Voice of America, CNN and BBC have been rewarded with local and global recognition.