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Don ko samajana mushkil hi nahi namumkin bhi hai (Understanding Don is not just difficult, but impossible), quipped market veteran Nilesh Shah, MD of Kotak Mahindra AMC, as conflicting statements on the Iran war emanated from US President Donald Trump over the weekend.

Inspired by a dialogue from the 1978 Amitabh Bachchan starrer Don, it encapsulates the uncertainty among India's investors and traders amid frequent changes in President Trump's stance on the conflict's objectives and duration.

In a post on Truth Social on Friday, the US President said he was considering ‘winding down’ military operations in the Middle East after getting ‘very close’ to meeting the US' objectives.

While investors could see this as a positive sign, they would again be flummoxed by Trump's plan to deploy more troops to the region, explained Shah.

Hapless investors and traders have sought to deal with frequent flip-flops preceding Trump's latest comments by initiating an options strategy that enables them to profit from sharp market movements in either direction.

Known as a long straddle in options parlance, the strategy aims to profit from a steep move in the Nifty on either side of 23100 by this Monday or Tuesday.

This is borne by a 58% rise in open or outstanding positions on the 23100 call and a 79% rise in the 23100 put, per National Stock Exchange (NSE) data as of Friday closing.

The market closed at 23114.5 on Friday (20 March), down 8.2% over the past three weeks since the war began. Interestingly, it bounced 2.7% from a near-similar level of 23151.10 on the preceding Friday (13 March) to 23777.8 last Wednesday (18 March).

However, the next day it again plunged 3.3% to 23002.15, before recovering almost half a per cent to close at 23114.5 on Friday as escalations impacted oil supplies.

In view of the steep movements since 13 March, investors and traders simultaneously purchased a weekly Nifty call and put option at 23100 on Friday. This is on the expectation of an equally steep movement on either side, depending on the direction of the war, early this week.

The total price for the option at Friday's closing was ₹450 per share (65 shares make one contract).

"These traders or investors expect to benefit from a surge in volatility on either side," said Kruti Shah, quant analyst at Equirus Securities.

The buyers stand to gain on every point movement above 23550 or below 22650. They will partly lose if the Nifty trades in a 22650-23500 range, or forfeit their entire deposit if the index expires at 23100 by Tuesday.

On the flip side, the straddle sellers don't anticipate the markets to tank below 22650 or rally beyond 23550 by Tuesday, which will enable them to retain much of the premium or the price paid by the buyers. However, their losses could be unlimited if volatility spikes beyond either limit.

However, some market veterans seem more sanguine about a rally after the steep correction of the past three weeks.

"The markets could cheer the US plan to wind down the war in Iran," said Nirmal Jain, founder of IIFL group. "It's a buy on dips market, especially if the supply constraints are eased over the next few weeks. To my mind, a large part of the correction is over."

As of Friday, FPIs were cumulatively net short index (mostly Nifty) calls by 248,220 contracts and net long index puts by 413,696 contracts, per NSE data. Retail/HNI were net long index calls by 347,554 contracts and net short index puts by 561,034 contracts.

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