ET Intelligence Group: An event risk is typically a delight for derivatives traders who use market volatility to mint money. However, this time around they are finding it challenging to cash in on the expected volatility on May 23, the day when results of the general elections will be out. This is due to low liquidity and inability of option sellers (writers of the options) to compute probability adjusted premium, thereby blurring the price discovery process. As a result, cumulative outstanding .
Option sellers rely on empirical or logical method to calculate probability-adjusted premium. For this, they need to first determine the probability of an event and that’s where the problem lies. They are unable to compute the probability of a BJP win.
If there is a higher likelihood that the BJP wins the mandate for the second five-year term in a row, the slide in the benchmark index will be lower. On the contrary, if the probability of a non-BJP government is higher, the market fall m ..
The situation may, however, improve once the exit poll numbers are out on May 19, according to a derivative trader ET spoke to. “Currently, derivative traders are finding it difficult to get reasonable price and quantity to initiate a new strategy. As a result, liquidity is quite low. Once the exit poll numbers are out, it will become easier to build in probability-adjusted premium, which may improve liquidity,” he said.
Another factor to watch is the clarity of the outcome. If any clar ..
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