Many time we are looking at trades where few strike having huge volume, but how to make profit out of such high volume options? moreover, why such huge volume seen in few strike prices?
Under the right conditions high options volume
can tip you off to some potentially explosive moves in individual stocks.
Of course these don’t always happen, but when you see high volume you need to
know what to do next…
Under the high options volume seen in
individual stocks, i.e. does not always happen each month but when we see such
volume everyone has to know....
There are usually only 3 main reasons for high option volume:
Upcoming News/ pending announcement.
Do you see and kind
of hint, rumors about companies might affect much on earning part in near time
frame. it can be new product launch, merger, acquisition or any approval
specially in pharma sector. It provide big place to bet for speculator and
expecting big announcement from management. Example: Special Package to
weak bank, Product Launch by Auropharma. Last week Result of RBL BANK came,
result was good but commentary of CEO explain next 3-4 Qtr result may not come
up to mark, which create big panic and stock moved sharply down from 580 to 400
in few days. Moreover, Coffee Cafe Day company made few transaction in this
company so Inspection of entire transaction may create big panic.
Hedging Purposes.
If you have a stock
in the portfolio and seen hard selling due to few short term announcement or
panic result. May put buyer come to buy put option to make portfolio safe. Many
times in Index i.e. Nifty trading at 11000 seen Option volume beyond 20% Strike
price like 9000 or 9500 Put option with huge lot for hedging purpose. Such
option buyer does not really expect such big fall but to have Insurance in case
any adverse moves comes. Specially HNI or Institutions do such trade.
Beginners Got Loose In The Market. To tell you honestly, many innocent trader come to learn
option trader and in initial days usually they buy OTM Option which are very
cheap in money term but no real logic of buying such option where no real study
or analysis done by trader. Many times on Expiry days big false message
forwarded to trader to buy stock option name SUZLON trading near 4 and call of
Buying 6 CE at 5 paisa @ 80000 lot size, simple investment of 4000 and target
of 60 paisa gives 48k. Retail trader hurry to buy such option and end up with
big loss.
Now that you know what can cause the high
volume, you need to know what it looks like on the pricing screen. High option
volume is when there is stand out volume that is head and shoulders above the
volume for similar strike options. Typically it can be 200% or higher volume.
Being an option trader once such situation is
been identified, one can do position where risk might be minimum even can earn
massive return in few days. Many times during massive movement in stock like
Jet Airway few days ago moved more than 100% and stock moved from 26 to 80 Rs.
on that day call of 120 Strike trading near 5 Rs, which is much risk free
premium to sale.
0 Comments