Sell Infosys Option Straddles Before Earnings Report, JRG Says

Infosys Ltd. will probably post quarterly results in line with analyst estimates tomorrow, disappointing buyers of options who bet the stock will swing 12 percent by month-end, according to JRG Securities Ltd.

Traders who bought put and call contracts with strike levels closest to Infosys’s share price yesterday, a wager known as a straddle, will profit if the stock moves about 12 percent by Oct. 31, data compiled by Bloomberg show. Anand Tandon, the chief executive officer of Kochi-based brokerage JRG, recommends selling those contracts because odds that the stock will swing by that much are “extremely low.”

India’s second-largest software company will probably say earnings rose 11 percent from a year earlier to 26.4 billion rupees ($424 million) in the quarter ended September, according to the average of 38 analyst estimates compiled by Bloomberg. Infosys, which had the most-traded options among companies on Indian exchanges yesterday, swung by an average 11 percent in Mumbai after its last eight quarterly reports.

“We don’t expect earth-shattering results this time,” Tandon said by phone.

Implied volatility, the key gauge of options prices, for at-the-money contracts on Infosys will fall to 27 percent from 63 percent before this month’s expiry on Oct. 31, Tandon said.

October 3,100 calls on the stock traded at 196.55 rupees yesterday, while October 3,100 puts cost 182.5 rupees. Infosys shares closed at 3,109.85 rupees.

The stock added 0.3 percent to 3,118.8 rupees at 11:04 a.m., extending this year’s gain to 34 percent. The benchmark S&P BSE Sensex has advanced 4 percent in 2013.

Trading in Infosys options jumped to 78,406 contracts yesterday from the 20-day average of 9,677, data compiled by Bloomberg show. Puts give the right to sell a security for a certain amount, called the strike price. Calls convey the right to buy.

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