Mumbai: The escalation of the border conflict with Pakistan and the uncertainty about the outcome of the first meeting of the newly constituted monetary policy committee have led to a sharp spike in hedging costs on the domestic bourses.
Market experts pointed out that the option writers are demanding higher premium for option contracts as the markets are likely to see high bouts of volatility.
“The premium or price paid to buy one lot of Nifty ‘at the money’ option contract has increased over the last few days. “Usually the premium on the money option contracts would be around 1.15–1.20 per cent of the Nifty’s futures price. This has gone upto nearly 1.5–2 per cent. The premium on Nifty at the money option has increased to Rs 150 per lot from Rs 115–Rs 120 per lot,” said Shashank Mehta, independent derivatives analyst.
‘At the money’ option refers to those option contracts whose strike price is same as the underlying instruments spot price. After witnessing a steep correction on Thursday, the equity markets closed with marginal gains on Friday.
Experts said investors are now anxiously waiting for the outcome of the two-day meeting of monetary policy committee that would conclude on Tuesday.
“This is the first meeting of the newly formed monetary policy committee and also the first after Dr Urijit Patel took over as the governor of the Reserve Bank of India (RBI). What the market participants are looking forward to is a clear signal from RBI on whether interest rates would trend lower in the coming months or remain constant for an extended period of time,” added Mr Mehta.
