The Derivatives Denizen

Your one stop derivatives guide.

Feb 07, 2004

Markets rally on poor incrementals.

The poor traded volumes and stagnant open interest signal caution.

The markets were up on Friday but the interest by the bulls was wanting as the open interest went up by miniscule quantum. The traded volumes were lower too as bulls lacked conviction at higher levels. The open interest has failed to rally since the beginning of the February series and that remains a constant cause for concern. If the bulls are not forthcoming in their buying support soon, the bears are likely to press short sales more aggressively in the coming few days.

Market internals - outstandings

Observation - The outstanding long positions are rising slowly as can be observed from the above table. The fact that the Nifty shows lower outstandings signals a caution as bulls have preferred to lighten up commitments. The increase in open interest has come mainly from options - a clear defensive sign of the bulls going on the back foot. Watch the next few sessions carefully for directions.

Previous gross long positions Rs 7464 crs, net long positions Rs 7066 crs

Source - The National Stock Exchange

Observation - The PCR shows a tilt towards the bears as the ratios are showing higher outstanding short positions on a day-to-day basis. The total PCR still remains positive. The equilibrium point is 0.50:1. The Nifty continues to take the brunt of the bearish positions.

Source - The National Stock Exchange

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

Observation - The index contracts show which way the players are tilting - downwards. The bearish contracts are showing a higher incremental in Rupee terms as compared to the bullish ones. The bulls are clearly on the defensive - buying deeply out of money calls at 1900, 1800, 1850, 2000 and 1950 strikes. They are clearly saving on premium and hoping for an upmove. The bears on the other hand are a lot more aggressive - 70 % of their short positions are at strike prices of 1800 and 1750 respectively. They feel the markets will slide below 1750. By any account - technicals and F&O, the 1750 levels are fast emerging as a crucial level to watch.

Most actively traded contracts - Calls

Most actively traded contracts - Puts

Observation - An analysis of the most active contracts traded throws up an interesting observation - the bears continue to attack the Nifty at 1800 & 1750 puts !!

Source - The National Stock Exchange

5 Highest outstanding scrips

Observation - The action remains polarised around the big four, however, Ranbaxy continues to remain the odd man out. In the options segment Reliance has overtaken Telco. Reliance, Telco and Tisco are likely to lead the markets from the front in the coming weeks. Also notice another aspect - the action is shifting from the futures to the options segment. This is a clear sign of bulls going on the defensive as markets rally higher.

 

Source - The National Stock Exchange

Higher implied volatility is used by swing / momentum traders to guage the fluctuation that a counter is likely to provide in either direction. If a trade is initiated in the right direction ( buy / sell ) at the right time & strike price, these trades result in superlative returns.

Observation - Our investors will recall our concentrated recommendation on Arvind Mills, GAIL & Maruti ( based on charting ) are coinciding with the F&O considerations. However, other factors too need to be taken into account before a fresh trade is initiated.

 

Source - The National Stock Exchange

Changes in outstanding futures positions.

Stars of the day

Stock	Open interest	Stock price	Outlook
Ranbaxy	Up	Down	Accumulation
Satyam Computers	Down	Up	Profit taking
Tisco	Down	Up	Profit taking
Nifty	Down	Up	Profit taking

 

Note - +++ signifies higher open interest in the February, March & April series simultaneously.

 

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.

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