The Derivatives Denizen.

Your one stop derivatives guide.

June 19, 2004

Markets near crucial supports. Volatility continues to fall.

Outstanding long positions up 262 crs.

The markets have fallen by slightly over 1 % on 10 % higher volumes as the retail participants have continued to stay away from day-to-day activity. The bears have managed to tighten their grip on the markets. The Outstanding net long positions are up approximately 06 % on a week-on-week basis. This is a positive development as the bulls show marginal conviction at lower levels. The traded volumes were 10 % higher, but the markets have fallen, which implies gathering momentum on the downsides. The outlook appears cautious as the markets are seeking a support base near the 1450 levels which if violated, will see 1395 levels. With the rapid fall in implied volatility, which had scaled to over 100 % after May 17 2004, we expect a downward revision of span margins in the futures segment. That will 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.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,813 42
Stock futures	2,989 80
Index options		568 79	383 13	185 66
Stock options		801 140	266 66	535 74
Total Futures	4,802 122	Total options - net	720 140
Gross longs ( F+ O )	6,171 341	Net longs ( F+ O )	5,522 262

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 closer to expiry. The coming days will continue to be governed by expiry considerations. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 5,830 crs, net long positions Rs 5,260 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold over Rs 3,000 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 their entire exposure in the near future, it also shows that 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 sold more futures than they have bought on June 17, 2004. That indicates profit taking in the near term. Similar sales are seen in the cash segment also, which shows a bias towards paring of long exposure in the short term. We advocate monitoring these figures carefully.

Source - The National Stock Exchange.

The traded volumes have surged - a negative sign as the markets have fallen on higher volumes amidst a bearish grip. The traded turnover was higher 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	12,916	14,401	1,485
Stock futures	14,863	16,219	1,356
Totals - a	27,779	30,620	2,841
Index calls	922	1,197	275
Stock calls	1,141	1,221	080
Totals - b	2,063	2,418	355
Index puts	742	879	137
Stock puts	400	538	138
Totals - c	1,142	1,417	275
Grand totals ( a+b+c)	30,984	34,455	3,471

Source - The National Stock Exchange.

PCR - Index	0.71 : 1	Previous week	0.80: 1
PCR - Stocks	0.33 : 1	Previous week	0.31 : 1
PCR - Total	0.37 : 1	Previous week	0.36 : 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 covering, but remains outright bearish, the shorts have risen slower than the longs. 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
1600 CE	126	114	12
1500 CE	85	105	20
1550 CE	82	80	02
1700 CE	33	33	00
1650 CE	30	27	03
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1500 PE	104	70	34
1450 PE	87	99	12
1400 PE	64	66	02
1550 PE	26	19	07
1370 PE	16	19	03

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 5 Crs. Our inference is - watch the 1450 support levels for the coming week. The bears have reduced Rs 24 Crs. That shows a tendency towards covering shorts at lower levels ahead of expiry. The undertone appears cautious 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

Please note how the open interest has increased in the July series in Guj Amb Cem and Tisco, whereas it has decreased in the June series. Guj Amb shows a higher buildup in the July series as compared to the sales in the June series. This shows a short covering / buying impetus at lower levels. The reverse is the case in Tisco, which shows a higher offloading in June and lower purchases in July. The outlook for Reliance is that of offloading at higher levels as the above table indicates. There has been short covering in SBI and GAIL at lower levels.

Source - The National Stock Exchange.

5 Highest outstanding scrips

Futures	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco	251	240	11
Reliance	233	222	11
ONGC	159	161	02
Infosys	149	151	02
Telco	147	151	04
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 320 calls	31	28	03
Satyam 320 calls	25	25	00
Satyam 300 Calls	08	24	16
Tisco 300 calls	18	21	03
Tisco 330 calls	18	17	01

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Telco. Outstanding open interest in most of the stocks has been stagnent - a routine phenomena towards expiry. Watch Reliance 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 1450 - 1550 on the long side and Satyam Computers, Reliance & Tisco in individual stocks.

 

Source - The National Stock Exchange.

This segment is for paid subscribers only.

 

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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