 "Rs 1,000 becomes Rs 20 lakh in day via short contract? Traders' big claims on Kotak Mahindra Bank")
Though billionaire Uday Kotak may have lost Rs 10,000 crore in a day after the Reserve Bank of India placed curbs on Kotak Mahindra Bank, some others seem to have made bank.
Like some enterprising traders who seemingly exercised the put option.
But what is the put option? And how did the traders mint money?
Let’s take a closer look:
What is it?
According to Investopedia, a put option is a contract that allows the buyer to sell or sell short a share at a prearranged price within a given period.
This price is known as the strike price.
Those put options can be exercised on stocks, currencies, bonds, commodities, futures, and indexes.
They essentially increase in value as the stock or asset declines in price.
However, they decrease in value if the stock or asset increases in price.
As per NDTV, these contracts expire on the final Thursday of every month.
A call option, which gives a trader the right to buy an asset, is the opposite of a put option.
NDTV quoted X user OptionsAlgos-Quanta as showing a trading chart on Friday to claim that an insider bought several lots of Kotak Bank for Rs 1,000 through the put option.
The handle claimed that the trader would have made profits of around ₹ 20 lakh.
Some insider bought 18 lots of kotak bank yesterday at 3:11 pm
— OptionsAlgos-Quant (@chaitukr08) April 25, 2024
His investment would have been hardly 1k inr
He would make 20L inr of profits today#StockMarketindia#stockmarkets#kotakbank pic.twitter.com/6uMndTppLp
Impact Shorts
More ShortsOther persons on social media made similar claims about huge profits.
A kotak put option up by 1 lakh + %🥵@jitendrajain injection pro max📈 pic.twitter.com/kMjL74qdcj
— Eshwar Vemala (@eshwarvs) April 25, 2024
Lottery to Kotak Put buyers with put option giving 20000%+ Returns.
— Chetan (@chetan_suri3) April 25, 2024
Join us to keep learning for FREE. Link: https://t.co/7ETWjxtJcD #Nifty #banknifty #StockMarket #OptionsTrading #StockMarketindia #AdaniGroup #StockToWatch pic.twitter.com/qoew7iJBHy
Moneycontrol reported that short contracts that expired today appreciated between 104 per cent and a whopping 71,600 percent.
It said KOTAKBANK APR 1700 PE rose from 20 paise closing yesterday to Rs 60 today (29,900 per cent), KOTAKBANK APR 1660 went from 5 paise yesterday to Rs 17.05 closing today (34,000 per cent) and KOTAKBANK APR 1680 PE rose from its 5 paise closing yesterday to Rs 35.85 closing today (71,600 per cent).
A veteran trader explained to Moneycontrol that though the price appreciation looks unusual, given the underlying price movement and that the announcement came close to expiry it really isn’t.
“All option premiums become zero on expiry and therefore many of these options would have been trading at 5 paise and 10 paise yesterday. Therefore, given that the stock price fell so sharply today and that the base (option premium) from yesterday was so low, the appreciation would look high,” the trader said.
All of the options that appreciated by 10,000 per cent and above were priced between 5 paise and Rs 1.55 at yesterday’s closing, as per Moneycontrol.
The Reserve Bank of India has halted KMB from onboarding new customers through online and mobile portals as well as ordered it to stop issuing fresh credit cards.
The RBI in a statement said it took action under Section 35A of the Banking Regulation Act, 1949, as “serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, etc.”
Kotak, responding to the central bank’s action, said KMB had acted swiftly with regards to “adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.”
With inputs from agencies
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