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Time of India
an hour ago
- Time of India
'Marking the close' explained in 5 points: Trick inside Jane Street's alleged manipulation playbook
Jane Street Group LLC, a US-based global proprietary trading powerhouse, which allegedly manipulated the Indian derivatives market, employed a strategy called 'Marking the close' on the Nifty index options. Here is a 5-point explainer on how this strategy works and why it is illegal: 1) Any option contract has an underlying stock, and its premium moves with the price of the underlying stock. For Instance, HDFC Bank's CALL option premium will rise if the stock price of HDFC Bank rises while its PUT option premium will rise with a fall in its price. 2) The logic can be extended to the index options, too. For instance, if the Nifty index moves higher, then the Nifty CALL option premium increases and the same is the case with the Bank Nifty. For index options, the underlying is the index itself, which in turn is a basket of stocks. 3) How Options premiums work Option premiums are calculated based on stock/index's current price vis-a-vis the strike price. Strike price is the price at which you exercise the option. So Premiums are high when they are at-the-money or in-the-money. -- In-the-money (ITM) call option: Current price is higher than strike price -- In-the-money put option - Current price is lower than strike price -- At-the-money (ATM) call/put option: Current price is close to strike price 4) On expiry days, OTM (Out of the Money) options are cheap because they are likely to expire worthless. ATM options are most volatile because they near the strike price and anything can happen. But for ITM options, they are fully loaded and available at a premium. Read More: Sebi may widen Jane Street probe to other indices, exchanges: Report For an options trader, the catch lies in the transition of premiums if he can buy a cheap OTM option for 50 paisa or a rupee and then watch it grow to Rs 10, 20 or even 100 in a matter of a few hours. Traders with deep pockets can make this possible and Jane Street's deep pockets seem to have that kind of money. 5) On the expiry day, you buy all the cheap Index OTM options on one hand and on the other hand, you either buy or sell the index underlying constituents to an extent where the options start to move in your favor. Sophisticated traders can do it by just buying or selling heavyweight stocks of the index. Traders can buy all the cheap options before 3 pm and after that, they can accordingly make orders worth crores of rupees in the heavyweight stocks. It can be done through algorithms which know the exact quantity, price and time, which makes computation of the expiry closing price easy, as the closing price is the weighted average of the last 30 minutes. The algorithms know the closing price which in turn makes your position favourable. Also Read: Jane Street Fallout: Zerodha's Nithin Kamath flags risk to brokers and stock exchanges Why is it illegal? Market regulator Sebi holds this as an unfair, deceptive, and manipulative practice that violates its norms. Sebi's 105-page order holds that Jane Street made unlawful gains through this. Jane Street has refuted these allegations and has said that it will engage with the regulators. ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Economic Times
an hour ago
- Economic Times
Jane Street clampdown raises big questions for Sebi: Can the regulator stop another derivatives fraud?
(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
Economic Times
an hour ago
- Economic Times
Ajay Bagga outlines 3 reasons why market strength may sustain ahead
ET Now: We are expecting the announcement as far as US trade deal is concerned anytime that is the indication which has come in from all the channels. But what should one watch out for in terms of level? Do you think there will be an impact on Indian markets per se, or you think we have already absorbed all the negative impact? Live Events ET Now: So, you are saying that most of it is priced in by the market. So, what are going to be the triggers for market next? Of course, we are starting with the earning season and what do you see for the earnings come first quarter of FY26, what are you seeing on the earnings front and what are going to be the next triggers for market because we are in a corrective phase right now so there have to be some triggers for the market to pick up direction? ET Now: There is a sectoral churn that is happening. So, in this, which sectors are likely to lead from the front because there was a point there where, of course, financials there was a common consensus, but snow in this sectoral churn that is happening what are the pockets of value in your opinion? (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel Ajay Bagga, Market Expert, says three big things, domestics are owning more of the market, they have reached about 25%, it is going to go to 30% in the next couple of years which will give strength to the markets; second, time-wise we have played out; and third, valuation-wise you are going to see better earnings on a base effect of the negative impact has been absorbed. If you look at May, the average tariff in the US was 8.8%. In June, it has gone up to 15%. With the full China Geneva deal coming in, the average of all goods imported into the US has gone to 15%.India will probably get a 10% universal tariff with sectoral tariffs on auto, auto components, as well as, steel and aluminium, from 25% to 50%, that is our expectation, that is what is baked if there is a unilateral letter from Trump saying that negotiations have broken down with India on agriculture and dairy products and we are levying the 24% reciprocal tariffs that had got calculated on 2nd April, then that will be a disappointment for markets. But if it is 10% universal plus sectoral tariffs, that is more or less factored in by the three big things we have to keep in mind. Now, one, this market has been in corrective phase since last week of September. So, we have finished nine months. We are very near the median correction time period which is basically 9 to 12 months is what Indian markets really spend in correction territory. So, we have spent the time big trend is that promoter holdings have been reducing along with the FII holdings and domestic holdings have been increasing. Now, domestics are by definition more retail money and more long-term money. So, the strength of the market has been increasing. Valuations are still quite high which is the issue in the markets not rushing towards reclaiming the September all-time third big thing we have to keep in mind is last April to September because of the follow on to the national elections, so the results came in June and we saw nearly till about September activity was still very from March to September, we lost out a lot of time last year. Earnings were very sluggish. You are going to get the benefit of the base effect this time around. So, we are expecting 12% to 14% earnings growth for NSE 500, that will help the markets, that will make the valuations look a little bit less expensive and there will be pockets which will look attractive, so base effect is coming three big things, domestics are owning more of the market, they have reached about 25%, it is going to go to 30% in the next couple of years which will give strength to the markets; second, time-wise we have played out; and third, valuation-wise you are going to see better earnings on a base effect there are stocks across sectors, but if you look at sectoral, financials are still well positioned. You will see some amount of a drag because of the rate cuts on the banks' NIMs, but volume expansion will more than make up for it and going ahead volumes will look better at lower rates, so banks will benefit and the entire financial pack from NBFCs to AMCs to the capital market related companies, insurance companies, those are looking very cement is coming back and we have seen a lot of runup already. Third, consumption, with a good monsoon, rural demand is picking up and urban should follow by the festival season, around October, we should see urban demand also coming in. So, consumption is looking then, industrials continue. With the amount of spend that the government is doing on the infrastructure side, on defence, on railways, all that will continue to do well. Defence, of course, the valuations becomes an issue at a particular price point and then we see fresh orders coming in and another boost up comes to right now, it is on a pause mode because of the valuations, but it should benefit from the new order flows. It is turning around. It has had a good month and we expect the worst of it to have been over, but more the midcap and smallcap IT will do better than the largecap it.
