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Irctc Investors Railroaded, F&O Hazards, Distribution Game

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Irctc Investors Railroaded, F&O Hazards, Distribution Game

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“Who got the free pass on IRCTC?” was the most asked question in the market on Friday, as wild swings in stocks during the first few hours of trading led a handful of traders to make a killing and many others to die. But almost everyone was sure of one thing: some smart players had access to information that the rest of the market did not have.
Last week, when IRCTC shares collapsed in large volumes after peaking at around Rs 6400, the market was full of talk about some influential players who were making a timely exit and at the same time balancing the price of actions through coordinated sales.

By pure coincidence, if one wanted to call it that, a couple of days earlier many out-of-the-money put options (5000 and 4500 strike) were bought cheaply. Buyers of these options were betting on a drop in prices and a profit when the stock fell below the strike price. And these traders benefited enormously as the options multiplied by almost 20 during the following sessions when the stock price plummeted.

A similar pattern was seen again this week when there was huge interest in money put options (800 strike price) hours before IRCTC informed the stock exchange of its decision to split the proceeds from the convenience fees. with the Ministry of Railways.

The next morning, the value of these options increased sevenfold when the share price plummeted to Rs 640. Even before the stock began to rally, there was massive accumulated action in the 750 strike call options.
Buyers of call options are betting that the share price will rise, which it did as soon as the Ministry of Railways reversed its decision to seek half of IRCTC’s revenue from convenience fees. The value of the options quadrupled in a couple of hours, generating a windfall profit for traders who had the “foresight” to buy them.

Veteran brokers say the large amount of money in trading based on information that is not yet public is now happening through the options market.

Whatever the reason for the radical change by the Ministry of Railways on revenue sharing with the IRCTC, it has once again revived the market mistake on PSU’s publicly traded shares: the government’s change of targets in the middle. of the game. This, unfortunately, occurs at a time when the market was starting to heat up for PSU shares in the wake of the successful privatization of Air India.

Leverage: a double-edged sword

Many new entrants to the market are slowly learning, at great cost, that leveraged bets can be cut both ways. In a rising market, leveraged trades make big profits without the need for too much capital.

But when the market corrects too quickly, the gains of the past few months can disappear in no time. This is true both for those who dabble in futures and options (F&O) and for those who bet on mid- and small-cap stocks.

Some advertisements for commercial applications claim that investing in the stock market is much easier than deciding which provider to hire. paani puri from. But veteran brokers point out that they are exactly those decisions (about stocks, not paani puri vendors) that have landed many first-time investors in trouble.

With the markets going up one way, the Indian ‘Robinhoods’ got bolder and kept increasing the size of their bets, confident that they had dominated the game. Of course, they had run into the occasional bear, but more tame guys like those in zoos, circuses, and on street corners on a leash. madari.

This left them ill-prepared for an encounter with the deadliest variety that the stock markets are famous for. Brokers say the hit on many small and mid-cap stocks, not to mention F&O trading, has been so severe that many newbies won’t venture into the market for a while, some permanently.

As for the survivors, they will take more measured bets and are unlikely to be seen or heard on social media platforms for a while.

The (re) distribution of great wealth

Despite the strong correction in recent sessions, Old Monk believes that a one-way downtrend looks less likely. The technical charts indicate a distribution pattern, which means that many high-flying names may have peaked by now.

However, these actions will not just collapse. First-time investors may have finally come to know what the term “correction” means. But you have yet to get acquainted with other market terms such as dead cat bounce, relief rally, fool’s rally, bear market rally, etc., which will be slowly revealed to you over the next few months.

Many stocks that have corrected 25 to 30 percent of their peaks look attractive compared to what they were trading a few weeks ago. Also, many investors who bought stocks at higher levels will be tempted to average their costs by buying at current prices.

Therefore, these stocks could experience a temporary rebound, but are unlikely to get anywhere near their recent highs. Given the upbeat mood in global markets, the Indian market could also top recent highs. But the stocks at the forefront of the action could be different from those that have had a fantastic streak so far.

So choose your actions and strategy carefully; the easy money is already made. Growing one’s wealth here will be hard work.

Read the previous columns of the D-Street Journal here

(Edited by : Yashi gupta)

First published: IST


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Irctc Investors Railroaded, F&O Hazards, Distribution Game

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