The Derivatives Denizen

Your one stop derivatives guide.

April 03, 2004

Markets bounce back. Volumes down.

Outstanding long positions improve as bulls return.

The markets have risen by approximately 5 % on a week-on-week basis as the bears pared positions at lower levels. The bulls have started increasing their exposure as the sentiments improved. The Outstanding net long positions are up approximately 15 % on a week-on-week basis. This is a routine phenomena due to starting of new April series contracts. The traded volumes were down 8 %. The outlook appears marginally improved as the markets clearly seek supports at 1750 levels. The support levels of below 1750 have seen bottom fishing and short covering which is a heartening sign in the near term. It is crucial that the volumes and outstanding positions and traded volumes improve simultaneously. The indicators seem to indicate that the worst is over for now. 

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1395 65
Stock futures	4890 566
Index options		415 173	282 182	133 09
Stock options		843 432	270 127	573 305
Total Futures	6285 631	Total options - net	706 296
Gross longs ( F+ O )	7,543 1236	Net longs ( F+ O )	6,991 927

Observation - The outstandings have increased as the above table indicates. This is a routine phenomena in the initial stages of beginning of new series contracts. The noteworthy aspect is the rise in Nifty puts. That shows a short selling tendency at higher levels. This development shows a hedging of stock longs with Nifty shorts. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 6,307 crs, net long positions Rs 6,064 crs.

Source - The National Stock Exchange.

The traded volumes have fallen - a negative sign as it signals a falling retail participation. A major part of this can be attributed to the expiry of March series. In the futures segment, the action is on the individual stocks as traders are taking focused views on stocks rather than a bouquet approach on the indices. We expect this trend to continue in the near term. The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears shaky as the table below indicates.

Description	Mar 26 - Rs crores	April 02 - Rs. crores	Change - Rs crores
Index Futures	20,116	18,488	1,628
Stock futures	29,647	27,821	1,826
Totals - a	49,763	46,309	3,454
Index calls	1,428	977	451
Stock calls	2,101	2,228	127
Totals - b	3,529	3,205	324
Index puts	803	602	201
Stock puts	1,055	628	427
Totals - c	1,858	1,230	628
Grand totals ( a+b+c)	55,150	50,744	4,406

Source - The National Stock Exchange.

PCR - Index	0.69 : 1	Previous week	0.42 : 1
PCR - Stocks	0.30 : 1	Previous week	0.28 : 1
PCR - Total	0.33 : 1	Previous week	0.30 : 1

Observation - The PCR shows a tilt towards the bears as the ratios are showing slack long positions on a week-on-week basis. The Nifty PCR has turned outright bearish. The bulls seem to have let a majority of their calls expire without creating commensurate positions in the April series. The total PCR still remains positive. The equilibrium point is 0.50 : 1. Our investors may refer to the previous weeks edition wherein it was clearly mentioned that support would come on the downsides. Open interest and traded volumes will hold the key. Click here to view previous weeks file.

Source - The National Stock Exchange.

Market internals - Nifty put / call trends - 5 highest open interest contracts

Calls	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1800 CE	39	93	54
1750 CE	54	58	04
1700 CE	50	46	04
1850 CE	07	38	31
1900 CE	07	29	22
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1700 PE	31	69	38
1750 PE	13	66	53
1800 PE	04	46	42
1670 PE	15	16	01
1740 PE	02	12	10

Observation - The index contracts show which way the players are tilting. The outstanding long positions seem to have increased slower than the short positions. The bulls have added Rs 107 Crs. Our inference is - watch the 1800 levels for coming week. The bears have added Rs 144 Crs. That shows a tendency to sell the Nifty shorts at higher levels. The undertone appears cautiously optimistic for now. Click here to view previous weeks file

Source - The National Stock Exchange.

5 Highest outstanding scrips

Futures	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco	422	444	22
ONGC	414	443	29
SBI	329	411	82
Reliance	380	312	68
Telco	262	274	12
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
ONGC 840 calls	14	54	40
ONGC 820 calls	04	38	34
Reliance 540 calls	17	33	16
ONGC 860 calls	11	25	14
Reliance 560 calls	07	20	13

Observation - The action remains polarised around the same big five counters - ONGC, Tisco, SBI, Reliance & Telco. Outstanding open interest in all the stocks has risen - a routine phenomena in the beginning of the new derivatives cycle. Watch Reliance, SBI and Tisco for directional guidance in the coming week. Click here to view previous weeks file.

Most active calls - top 10

Most active puts - top 10

The activity is polarised around the Nifty between the 1800 - 1850 on the long side and Tisco, ONGC & GAIL in individual stocks.

 

Source - The National Stock Exchange.

Volatility is a F&O traders best friend. We have split the volatility readings of the stocks in two segments - above the market average and below the market average. It is obvious that higher than average volatility will see a larger move in either direction and therefore benefit a savvy trader. It is wiser to avoid those stocks which show lower volatility readings if you want short term profits. Keep watching this space for regular updates.

Observation - Our investors are advised to watch the above highly volatile counters for signs of a bounce-back. However, other factors too need to be taken into account before a fresh trade is initiated. Note how the volatility has decreased across the board - a sign of the markets settling down at current levels.

Index heavy-weights - aggregate volatility

The index heavy-weights are showing lower volatility than the broader markets, which shows that the action is likely to be polarised around "side counters". The volatility in this category is down on a week-on-week basis. The software heavy-weights are relatively higher volatile than the old economy counters. Technology stocks are likely to remain in the focus of the trading pattern.

 

Indices - volatility

Underlying Underlying Volatility Underlying Ann. Volatility Futures Volatility Futures Ann. Volatility         CNX-IT 1.95 37.37 2.04 39.16 NIFTY 1.57 30.13 1.6 30.73 Aggregates 1.76 33.75 1.82 34.94

The index volatility is on the descent which shows a lower volatility in directional movement in the coming week.

Source - The National Stock Exchange.

Have a profitable day.

 

Vijay L. Bhambwani

Ceo :- Bsplindia.com

The author is a Mumbai  based investment consultant and invites feedback at Vijay@BSPLindia.com and  (022) 23438482 / 23400345.

SEBI disclosure -  The author has no positions in  the stocks mentioned above.

---

Legal  notice :-  The Professional  Ticker  Reader  & the Derivatives Denizen are trademarks  of  Bhambwani  Securities (P) Ltd.  and  any unauthorised  replication / duplication  in part or full  will  be infringing  our  trademark and  will  result in  legal  action  being  enforced  on  the  infringing  persons / parties.

---

While all due care has been taken while in compiling the data enclosed herein, we cannot be held responsible for errors, if any, creeping in. Please  consult  an  independent  qualified  investment  advisor  before  taking  investment  decisions. This mail is not sent unsolicited, and only advisory in nature. We have accepted no consideration from any company mentioned above and recommend taking decisions on merits of the stocks from our viewpoint. This email is being sent to you as a paid subscriber. Please protect your interests and ours by not disclosing the contents to any un-authorised  person/s.