Tech surprise traps retail option sellers

Retail traders who took huge punts ahead of the tech pack results are in for serious trouble if they don't hold the underlying stocks, market analysts said.

- Ram Sahgal

Shares of Infosys Ltd and Tata Consultancy Services Ltd (TCS) shot up on Friday after they posted better-than-expected third-quarter results the previous day, while Wipro Ltd and HCL Technologies Ltd, which released earnings after market hours on Friday, are expected to open higher on Monday.

Sellers of call options took up the huge bets on expectations that information technology (IT) companies' earnings would disappoint and their share prices would correct. But the results came out better than expected, and the stocks were rewarded by the markets.

Interestingly, both foreign and domestic institutions as well as proprietary traders have also sold call options, but these are against actual physical holdings; so, their losses in options would be offset by the gains in their stock holdings, said Kruti Shah, a quant analyst at Equirus Securities.

"Retail tends to punt before results and they do it through options," Shah said. "Since most of these bets are naked (without underlying shares), they would bear the brunt of the gap-up the most."