In the last trading session on Friday, their strategy consisted of selling more Nifty call options expiring on Tuesday, in anticipation of corrective to flat markets, which would enable them to retain the premia paid by the call buyers.
After India and the US issued joint statements on an interim trade deal reached on 2 February, the benchmark Nifty50 surged to 26,341.2 points. The index had fallen from a record high of 26,373.2 on 5 January to 24,571.75 on the Union budget day of 1 February.
Since then, however, the benchmark has declined 3.3% to 25,471.10 on Friday, dragged by the Nifty IT suffering its worst weekly loss in 10 months and investors weighing the benefits of the interim India-US trade deal, under which Indian imports into the US would face a lower tariff of 18% from 50% earlier.
Volatility spike
On Friday fear gauge India VIX had surged 13.35% to 13.29, underscoring the uncertainty in the market.
“Option sellers sold more calls as the AI transformative storm buffeted our IT companies at a time markets seem to have discounted news of the interim trade deal, while awaiting more clarity on its final contours in March,” said S.K. Joshi, consultant, Khambatta Securities.
The Nifty IT index, comprising the likes of Tata Consultancy Services, Infosys and Wipro, fell 8.2% week-on-week to 32,681.5 points on Friday.
While Joshi rules out a deep correction from Friday’s close, he expects a “sell-on-rise market” until more clarity emerges on the deal in terms of purchases of Russian oil, among other factors.
A call seller makes money when markets fall or remain flat during expiry of the contracts, by getting to retain the premia paid by the call buyers. Weekly Nifty contracts expire on Tuesdays. This week, the expiry is on 17 February.
On Friday, there was massive selling across call strikes, or levels of 25,500, 25,600 and 25,700 that expire on Tuesday. This indicates brokers do not see the benchmark crossing any of these levels.
For instance, the 25,500 call saw open interest (OI), or outstanding buy-sell positions, rise from a mere 11,616 contracts (1 contract equals 65 shares) to 143,012 contracts on Friday, per NSE data.
The 25,600 call saw open interest jump from 10,238 contracts as of Thursday-end to 197,301 contracts by Friday, while the 25,700 call one jumped from 22,473 contracts to 138,142 contracts.
However, if markets bounce on any good news, call sellers will be forced to close out their positions by buying the calls back, inducing a short-covering rally.
“In the past, when such call sales have been seen, markets tended to bounce,” said Rohit Srivastava, founder, analytics firm IndiaCharts. However, Srivastava, like Joshi, believes that volatility would rise, as any rally in markets would be sold into.
“It’s possible markets would continue a decline on Monday, then rise on Tuesday because of short-covering by call sellers, only to decline thereafter as there are too many moving parts, including possible conflict in the Middle East or AI-related news, which could queer the pitch again,” said Srivastava.
Basis Friday option positions, the range for the market is Friday’s low of 25,444–25,600 through Tuesday, feels Kruti Shah, quant analyst at Equirus. However, she expects markets to trend in a 25,500-26,400 range for the current month.
After selling cash shares worth $27 billion in 2025, FPIs sold shares worth $2.27 billion in the current calendar year through Thursday, per National Securities Depository Ltd data. This doesn’t include Friday’s provisional sale of ₹7,395.41 crore on Friday, per BSE.
