Abrupt spikes in midcap what does it mean? What should traders do?
The spike in put options was triggered by a sharp drop in the Midcap Select Index, leading traders to rush to sell their options.
image for illustrative purpose
Sudden jumps in the price of put options for Midcap stocks on their expiry dates are causing traders to lose their money. This happens because there isn't much trading activity in these options, so when there's even a small increase in selling, the prices shoot up quickly. This can wipe out traders' capital, as seen on April 8, when the price of a particular put option rose from Rs 0.850 to about Rs 150 in just 3 minutes.
The spike in put options was triggered by a sharp drop in the Midcap Select Index, leading traders to rush to sell their options. This rush caused prices to rise even more. Such situations are more common in newer indices like Midcap, which have less trading activity, compared to well-established ones like NIFTY and BANKNIFTY.
Traders are advised to be cautious when trading options in less liquid markets like Midcap. It's better to avoid trading altogether or stick to safer strategies like iron condors to protect your capital. Capital preservation should be the top priority, even if it means missing out on potential profits.
Disclaimer: It's important to note that the opinions expressed by experts are their own, and it's advisable to consult certified experts before making any investment decisions.
