In only one day, Rs 1,000 becomes Rs 20 lakh! Kotak Mahindra Bank short contracts may increase in value by up to 71,600%

In only one day, Rs 1,000 becomes Rs 20 lakh! Kotak Mahindra Bank short contracts may increase in value by up to 71,600%

On April 25, Kotak Mahindra Bank's stock dropped by around 11%, one day after the RBI prohibited the company from accepting new digital customers and credit card applications.

Conversations on social media today revolved on Kotak Mahindra Bank put options that received astounding applause.

A broker posted a picture of a purchase order for eighteen lots at 3:11 PM yesterday, April 24, saying the buyer may have just paid Rs 1,000 and might have made as much as Rs 20 lakh today.

Today's expiring short contracts saw appreciation ranging from 104% to a staggering 71,600%. KOTAKBANK APR 1660 increased from 5 paise yesterday to Rs 17.05 closing today (34,000 percent); KOTAKBANK APR 1680 PE increased from its 5 paise closing yesterday to Rs 35.85 closing today (71,600 percent); and KOTAKBANK APR 1700 PE increased from 20 paise closing yesterday to Rs 60 today (29,900 percent).

This occurred on a day in which the bank's stock price dropped by over ten percent and the central bank imposed limits on the bank's activities.

The private lender has stopped providing credit cards and onboarding customers online, according to the Reserve Bank of India (RBI).

As the price movement of the underlying and the announcement's proximity to expiration suggest, the price appreciation, while seemingly exceptional, is really not, a seasoned trader told Moneycontrol.

"Many of these options would have traded for 5 paise and 10 paise yesterday since all option premiums expire at zero. Thus, the appreciation would seem big because of the steep decline in the stock price today and the low base (option premium) from yesterday," he stated.

At yesterday's close, the prices of all the options that had appreciated by 10,000 percent or more ranged from 5 paise to Rs 1.55.

The RBI decision, according to industry observers, is probably going to hurt the bank's retail operations and the mood around the stock price.

In its analysis, Brokerage Jefferies said that throughout the previous two years, the central bank had identified significant weaknesses in Kotak Bank's digital and security infrastructure.

It went on, "The bank has been requested to cease issuing new credit cards and onboarding new clients via online and mobile channels. These will be examined after the audit and settlement. A similar situation arose for HDFC Bank in 2020, and it took nine to fifteen months to resolve. It may impact income and expenses if the settlement takes longer than six months.

The analysts maintained their 'hold' recommendation, cut their price objective from Rs. 20,50 to Rs. 1,970, and reduced earnings from 1% to 2%.