With the market turning ext­remely volatile, life has become tough for option traders as

RELATED ARTICLES Sensex snaps two-day rally, down 82 points on poor IIP nos Sensex up 123 pts in late buying amid firm European mkts Sensex snaps 5 day rally on low growth estimates Sensex up 102 pts led by realty, capital goods stocks Sensex up 173 points; RIL gains 1.10%

ov­ernight developments turn out-of-the-mo­ney (OTM) options into in-the-money (ITM).

The high volatility in option prices has resulted in a decline in build-up in so­me of the at-the-money options as tr­aders are shying away from writing fresh op­tions.

The volatility in the market is expected to continue for some time, both due to global as well as domestic news flow. At times of such volatility, it is better to have small positions and be on the long side of the option.

Being on the long side of the option means a trader should be more keen to buy an option than writing them.

But as buying of options involves spending cash and decay in time value can lead to losses if there is no major movement, we would suggest option traders to reduce the volume of trades that they normally take.

For this week, we would suggest buying of a put option at strike price 4,900, which is now quoting at Rs 29, and also a call option at strike price 5,200, which is going for Rs 37.

The volatile movement in Nifty is going to lead to a sharp movement in the prices of both of these options.

In case of an upward movement on Nifty, traders who have taken short positions at 5,200 levels are going to run for cover as this is seen as a major resistance for the index.

Once this resistance is broken decisively, we are likely to see a bout of short covering.

Similarly, if Nifty moves southward, the put option of 4,900 is going to see buying as traders will look for protection against Nifty moving below its crucial support at 4,800.

But traders, who are buying these options, should be nimble-footed to book profit quickly as these options are not going to yield profit at the end of the June series of derivative contracts.

Traders should use them as an instrument to trade in volatility till the time Nifty takes a directional move.

For investors who are holding large quantities of stocks in their portfolio, writing an out-of-money call option could be another strategy that may be utilised to reduce the cost of holding.