Option sellers baking in 8% swing in Nifty on 4 June

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₹865 a share (25 shares equal one contract). This is the price that option sellers have charged buyers of the 22500 call and put option—straddle in market speak—which works out to a total 7.7% range (22500-865 and 22500+865)to cover their risk in the event of sharp price movements.For context, the Nifty swung 427 points (4%) between intraday high and low in the previous Lok Sabha election result day on 23 May 2019 and 433 points (6%) during the results for Lok Sabha 2014 polls on 16 May 2014.During such events traders' anticipation of wild swings raises prices of both call and put options.

This, in turn, results in a spike in fear gauge India VIX, which has rallied 88% this month to 24.18 as of Thursday.Nifty options expiring on 6 June are the most actively traded with total call open (outstanding) positions at 13.58 lakh shares and total put open positions at 11.17 lakh shares. NSE offers four weekly expiries every month).

This was the data available Thursday after the expiry of the May series of futures and options contracts."There has been short formation in the derivatives space where some retail investors seem to have taken contra positions to speculate on the election event," said A. Balasubramanian, MD & CEO, Aditya Birla Sunlife AMC.Bala, as he is known in market circles, said that mutual funds being "long-only" use the derivatives segment only for hedging and warns retail investors against speculation on market moving events which can subject them to huge losses.He added that there was a "high probability" of the Bharatiya Janata Party "bettering" its 2019 seat tally of 303 in the current round of elections.Despite this expectation volatility as reflected by VIX has risen massively this month, especially ahead