Short-sellers caught in short-circuits
While bulls benefited from the double circuit breaker on the stock exchanges on Monday, it were the bears that got hammered as benchmark indices gained in excess of 17 per cent, reports Sandeep Singh.business Updated: May 19, 2009 20:29 IST
While bulls benefited from the double circuit breaker on the stock exchanges on Monday, it were the bears that got hammered as benchmark indices gained in excess of 17 per cent. They paid the price on Tuesday, forced to buy at higher levels.
As the circuit breakers stopped trading, speculators who had taken positions anticipating a fall took a big hit. “The short sellers got trapped and they could not cover their positions because of the circuit and they had to cover today with even higher losses,” said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.
The bears who took short-sale positions in the market on Friday or before in anticipation of a plunge could not manage to cover up their positions as the market ran into a circuit-breaker just after it opened on Monday and yet another one as quickly a while later.
“They got trapped into losses and they could manage to cover their positions today with higher losses,” said Mathew. “The ones who could not cover their positions or did not want to cover it, sold their stocks so as to recover margins,” said Ajay Parmar, head of research, Emkay Share and Stock.
The situation was exactly the opposite for the bulls in the market, who made super profits. “I had a trader who bought call option in the market on Friday and he wanted to book profit on Monday as the markets rose but he could not. However, the circuit helped him to book higher profits than he expected as he booked it today at a higher price,” said a broker who did not wish to be named.