MUMBAI: Punters have purchased a straddle on IndiGo options that will yield them profit whichever way the share moves after the outcome of Thursday’s EGM in two days. The only rider is that the movement should be sharp for them to gain.
A straddle involves a trader buying a call and a put option simultaneously to profit from a large price movement. A call option buyer is bullish and a put option buyer is bearish.
On IndiGo, buyers are wagering on an over 9% move from Rs 2,000 either way once the shareholder voting results on a resolution to amend the company’s articles of association are uploaded on the company’s web site. This means a trading range of Rs 1,820-Rs 2,180. The share closed down 1.4% at Rs 1,979.55 on Thursday.
The option sellers are confident that the price will stay within the 9% band so they can pocket the price or premium paid by option sellers. The options expire on Jan 27.
“The option sellers have sold with adequate cushion and we’ll have to wait to see whether the share moves as per the buyers’ anticipation, post the EGM outcome,” said Rajesh Palviya, derivatives head at Axis Securities.
Palviya expects the stock to head toward Rs 2,250 within the next two months. Rakesh Gangwal and Rahul Bhatia, promoters of Interglobe Aviation, called for the EGM to amend the company’s articles of association that allows either shareholder to sell their shares to a third party without notice to one another.
Options give a buyer the right but not the obligation by paying a premium to buy or sell an underlier at a predetermined price on a preset date.
However, on Indian exchanges like NSE options are cash settled, which means only the difference between the share’s current market price and the buying price is exchanged.