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Nifty options straddle trade shows unusual late-session moves amid auction
The auction close is set at 3:35 p.m., while derivatives settle at 3:40 p.m., creating potential price gaps as expiry approaches for both Nifty and Sensex options.
A key options strategy used in India to wager on volatility during equity derivatives expiry has shown an unusual pattern in the latest session, as changes to end-of-day price determination have driven noticeable swings in index closing levels, according to reporting syndicated by LiveMint Markets citing Bloomberg.
The value of an at-the-money Nifty 50 Index straddle, which involves simultaneously buying or selling a put and a call, rose late in Tuesday’s session. Because expiring contracts should typically fade toward zero throughout the day, the late strength drew attention as traders reacted to the new closing-price mechanism introduced on Monday.
The shift stems from an auction used to determine the Nifty 50’s official close, which is now set at 3:35 p.m. Mumbai time, while derivatives settlement still occurs at 3:40 p.m. The outlet says official closes in the past two days have differed sharply from levels seen at 3:15 p.m., a gap that some market participants view as creating possible trading dislocations.
Traders are now watching for further discrepancies on Thursday, when options tied to the BSE Sensex Index expire on BSE Ltd. LiveMint Markets also notes that limited participation in BSE cash and even thinner participation in the auction session could widen the difference between closing prices across exchanges.
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