The Derivatives Denizen.

Your one stop derivatives guide.

July 31, 2004

Markets poised at breakout levels.

FII outstanding long positions at 2430 crs.

The markets have risen 2 % higher on 32 % higher volumes as the retail participants seem to have returned this week. The bulls have managed to tighten their grip on the markets for now, and the monsoons seem discounted into the prices. The Outstanding net long positions are down approximately 20 % on a week-on-week basis. This is a routine development as the OI has fallen due to expiry. The outlook appears optimistic as the markets are below a resistance at the 1637 levels which if surpassed, will see 1660 levels. The Nifty futures continue to trade at a discount to cash of Rs 10, which implies continued short selling by bears at higher levels, as well as by bulls who are hedging their stock longs. The stocks of the week are likely to be Tisco, Reliance and Satyam Computers.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,491 499
Stock futures	3,588 287
Index options		195 586	146 561	49 25
Stock options		420 478	108 415	312 63
Total Futures	5,079 786	Total options - net	361 88
Gross longs ( F+ O )	5,694 1850	Net longs ( F+ O )	5,440 874

Observation - The net out-standings have decreased as the above table indicates. The fall in out-standings has been in the Nifty futures and stock futures, which is a routine development. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 7,544 crs, net long positions Rs 6,314 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold approximately Rs 2,430 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 largely 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 sold more futures than they have bought on July 29, 2004. That indicates selling in the near term. purchases of Rs 162 crs are seen in the cash segment on that day, which shows a bias towards hedging of positions in the short term. We advocate monitoring these figures carefully.

Source - The National Stock Exchange.

The traded volumes have risen - a positive sign as the markets have risen on higher volumes amidst a pullback. The traded turnover was higher in the futures segment. We want this trend to continue in the coming week if the markets are to sustain an upmove. The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears improved in the short term. Click here to view previous weeks file

Description	Previous week - Rs. crores	Current - Rs. crores	Change - Rs crores
Index Futures	12,126	14,519	2,393
Stock futures	20,116	29,651	9,535
Totals - a	32,242	44,170	11,928
Index calls	1,296	1,260	36
Stock calls	1,856	2,272	416
Totals - b	3,152	3,532	380
Index puts	736	772	36
Stock puts	685	743	58
Totals - c	1,421	1,515	94
Grand totals ( a+b+c)	36,815	49,217	12,402

Source - The National Stock Exchange.

PCR - Index	0.76 : 1	Previous week	0.94: 1
PCR - Stocks	0.23 : 1	Previous week	0.53 : 1
PCR - Total	0.27 : 1	Previous week	0.58 : 1

Observation - The PCR shows a tilt towards the bulls as the ratios are showing squaring up of short positions on a week-on-week basis. The Nifty PCR has seen some short covering, but remains outright bearish, the shorts have risen slower than the longs. This implies that the bears are unwilling to enhance their positions. This ( PCR ) will be the one of the most reliable indicator of market trends. The total PCR has turned positive. 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
1600 CE	153	76	77
1550 CE	152	32	120
1640 CE	01	29	28
1500 CE	142	17	125
1620 CE	08	17	09
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1500 PE	177	34	143
1550 PE	128	43	85
1450 PE	122	05	117
1600 PE	47	50	03
1640 PE	01	07	06

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 109 Crs. Our inference is - watch the 1590 support levels for the coming week. The bears have reduced Rs 336 Crs. That shows a tendency towards squaring up shorts at higher prices. The undertone appears 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
Tisco	455	427	28
Reliance	328	294	34
Infosys	223	186	37
SBI	223	220	03
ONGC	190	151	39

Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 370 calls	21	20	01
Tisco 390 Calls	03	16	13
Tisco 400 calls	03	15	12
Tisco 410 calls	01	13	12
Tisco 380 calls	10	12	02

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Infosys. Outstanding open interest in most of the stocks has fallen - a routine phenomena before expiry. Watch Reliance for directional guidance in the coming week, as we have been emphasising since a month. 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 1550 - 1640 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.

This segment is for paid subscribers only.

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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