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This is the option chain from NIFTY Index about a month from expiry.

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Apart from speculation what strategy could these option writers be following by writing in the money calls at 10000 or puts at 13000 ?

Similar writing can be seen at in the money put at 13000. both these strikes are around 1300-1700 points away from the current price.

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The question assumes that these writers have some strategy in place to minimize their risk.

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For every transaction, there's a buyer and a seller. Therefore the impetus for these trade could be a buyer or it could be a seller. There are many possibilities and here are just a few examples:

  • If there was a large buyer of the 10,000 strike calls, the market maker could take the other side of the trade by doing a conversion arbitrage and laying off the risk (buy the stock and buy the put). Note the high change in open interest the 10,000 puts and calls. Also note that both the 13,000 puts and calls also have a very large change in the open interest.

  • Or perhaps there were a similar large number of puts (or calls) traded in a different expiration. That would mean that the trader might have been buying or selling a spread (horizontal or diagonal).

  • A seller of an OTM vertical spread could achieve the same position by selling the same strikes but both ITM except OTM. That would generate a large credit (I see 10% interest at the bottom).

  • The buyer (or seller) of the ITM puts could be delta neutral trading.

There's almost no way to know what strategy being employed is unless you see two identical large trades of the same size. Then it's a spread, straddle or strangle, depending on the strikes and expiration(s).

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  • Can you expand on the first point a bit ? How is risk getting reduced by selling call buying stock and buying put. Effectively this is a bearish position right ? And the cut off will depend on the chosen strike prices. It will be helpful if you explained that with an example. Oct 29, 2020 at 5:52
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    No, it's a riskless position. Here's are two explanations of the strategy: Link One and Link Two. Oct 29, 2020 at 11:04

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