The Derivatives Denizen.

Your one stop derivatives guide.

July 03, 2004

Markets at crucial thresholds before budget.

FII outstanding long positions up 600 crs.

The markets have risen by 2 % on 09 % lower volumes as the retail participants seem to have participated in the first two sessions of the week. The bulls are trying to tighten their grip on the markets, and the outcome of this tussle will be amply clear within the next week or so. The Outstanding net long positions are up approximately 30 % on a week-on-week basis. This is a positive development towards the budget. The outlook appears cautiously optimistic as the markets are above a support base at the 1480 levels which if violated, will see 1455 levels. Last fortnight, we had advocated that with the rapid fall in implied volatility, which had scaled to over 100 % after May 17 2004, we expected a downward revision of span margins in the futures segment. That would make it easier for participants to enhance exposure in the markets. Volumes may pick up in the July series and which way the markets head will be determined within the coming week itself. That judgement has been vindicated by the market forces. The Nifty futures continue to trade at a discount to cash of Rs 13, which is significantly lower than the previous weekend figures. This implies partial short covering by bears.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,443 351
Stock futures	3,105 588
Index options		490 242	173 173	157 69
Stock options		471 252	188 113	283 139
Total Futures	4,548 939	Total options - net	440 208
Gross longs ( F+ O )	5,509 1433	Net longs ( F+ O )	5,223 1382

Observation - The out-standings have increased as the above table indicates. The rise in out-standings has been allround, which is a positive development, especially before budget. The coming days will continue to be governed by news driven ( budgetary ) considerations. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 4,076 crs, net long positions Rs 3,841 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold approximately Rs 2,900 crs in open interest which is a substantial portion of the entire market open interest. Though this means that FII's are unlikely to unwind this exposure totally, the fact is, the markets are completely FII dependent as of now. This shallowness in the markets will make the rallies / falls very sharp due to a low outstandings base. The FII's seem to be concentrating on stock futures and then Index futures in that order of preference. Please note that FII's have bought more futures than they have sold on July 01, 2004. That indicates buying in the near term. Similar purchases are seen in the cash segment also, which shows a bias towards build-up of long positions in the short term. We advocate monitoring these figures carefully.

Source - The National Stock Exchange.

The traded volumes have slackened off - a negative sign as the markets have risen on lower volumes amidst a pullback. The traded turnover was lower all round. We expect this trend to continue in the coming week. The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears brittle in the short term. Click here to view previous weeks file

Description	Previous week - Rs. crores	Current - Rs. crores	Change - Rs crores
Index Futures	15,679	13,880	1,799
Stock futures	21,750	20,350	1,400
Totals - a	37,429	34,230	3,199
Index calls	1,272	1,239	33
Stock calls	1,303	1,261	42
Totals - b	2,575	2,500	75
Index puts	989	736	253
Stock puts	633	362	271
Totals - c	1,622	1,098	524
Grand totals ( a+b+c)	41,626	37,828	3,798

Source - The National Stock Exchange.

PCR - Index	0.71 : 1	Previous week	0.66: 1
PCR - Stocks	0.34 : 1	Previous week	0.28 : 1
PCR - Total	0.39 : 1	Previous week	0.34 : 1

Observation - The PCR shows a tilt towards the bears as the ratios are showing higher short positions on a week-on-week basis. The Nifty PCR has seen some short selling, and remains outright bearish, the shorts have risen faster than the longs. This implies that the bears are unwilling to surrender their positions. This ( PCR ) will be the one of the most reliable indicator of market trends. The total PCR has remained above the optimal point. The equilibrium point is 0.50 : 1. 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
1500 CE	83	136	53
1550 CE	37	103	66
1600 CE	25	79	54
1450 CE	57	44	13
1650 CE	02	21	19
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1500 PE	21	112	91
1450 PE	53	100	47
1400 PE	26	42	16
1370 PE	23	21	02
1800 PE	17	17	00

Observation - The index contracts show which way the players are tilting. The outstanding positions seem to have increased all round in the previous week. The bulls have added Rs 179 Crs. Our inference is - watch the 1480 support levels for the coming week. The bears have added Rs 152 Crs. That shows a tendency towards covering shorts at lower levels. The undertone appears cautiously optimistic for now. Click here to view previous weeks file

Source - The National Stock Exchange.

Top 5 scrips with positive changes in open interest

Top 5 scrips with negative changes in open interest

Source - The National Stock Exchange.

5 Highest outstanding scrips

Futures	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Reliance	219	262	43
Infosys	158	239	81
Tisco	220	224	04
Telco	137	212	75
SBI	164	192	28

Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 300 calls	11	15	04
RIL 440 Calls	06	14	08
Tisco 310 calls	03	14	11
Infosys 5500 calls	11	13	02
RIL 430 calls	04	12	08

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Telco. Outstanding open interest in all the stocks has risen - a positive phenomena as it shows bullish activity. Watch Reliance for directional guidance in the coming week, as we have been emphasising since a fortnight. 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 1450 - 1550 on the long side and Satyam Computers, Reliance & Tisco 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 intraday / short term trader. Please note how the volatility has fallen sharply across the board since the last 3 weeks. It will have an impact on the margins payable by futures traders. 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.

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 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

 

This segment is for paid subscribers only.

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.

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