Options Trading News

August 29, 2013  Thu 3:16 AM CT

Indian stocks have fallen hard along with most emerging markets for months, but traders are betting that Mumbai-based ICICI Bank will rebound by early next year.

More than 5,200 January 30 calls traded in a strong buying pattern yesterday as premiums rose from $1.21 to $1.59, led by a single print of 4,415 that went for $1.28. These are clearly new positions, as the volume was far above the strike's open interest of just 484 contracts before the trades appeared.

The long calls lock in the price where traders can buy the stock through mid-January no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if IBN remains below $30. (See our Education section)

IBN began yesterday's session at a 52-week low of $24.94 but closed higher by 3.14 percent to $26.26. Earlier this month the bank dropped sharply along with many other stocks as the rupee plunged and emerging markets in general retreated over fears that the Fed would change its monetary policy.

Total option volume in IBN topped 14,000 contracts yesterday, triple its daily average for the last month. Overall calls in the name outpaced puts by more than 3 to 1, a further indication of the session's bullish bias.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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