The Derivatives Denizen.

Your one stop derivatives guide.

June 26, 2004

Markets making crucial patterns. Expiry uneventful.

FII outstanding long positions at 2300 crs.

The markets have fallen slightly by 0.3 1 % on 20 % higher volumes as the retail participants seem to have participated in the final two sessions of the week. The bears 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 down approximately 30 % on a week-on-week basis. This is a routine development towards expiry of the derivatives settlement. The outlook appears cautious as the markets are near a support base at the 1450 levels which if violated, will see 1395 levels. Last week, 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.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,092 721
Stock futures	2,517 472
Index options		248 320	160 223	88 97
Stock options		219 582	75 191	144 391
Total Futures	3,609 1193	Total options - net	232 488
Gross longs ( F+ O )	4,076 2095	Net longs ( F+ O )	3,841 1681

Observation - The out-standings have decreased as the above table indicates. The fall in out-standings has been allround, which is a routine development, especially at expiry. 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 6,171 crs, net long positions Rs 5,522 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold over Rs 2,300 crs in open interest which is a substantial portion of the entire market open interest. Though this means that FII's are unwind their exposure, the fact is, the unwinding was due to expiry considerations. However the FII component of O.I. 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 bought more futures than they have sold on June 24, 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 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	14,401	15,679	1,278
Stock futures	16,219	21,750	5,531
Totals - a	30,620	37,429	6,809
Index calls	1,197	1,272	75
Stock calls	1,221	1,303	82
Totals - b	2,418	2,575	157
Index puts	879	989	110
Stock puts	538	633	95
Totals - c	1,417	1,622	205
Grand totals ( a+b+c)	34,455	41,626	7,171

Source - The National Stock Exchange.

PCR - Index	0.66 : 1	Previous week	0.71: 1
PCR - Stocks	0.28 : 1	Previous week	0.33 : 1
PCR - Total	0.34 : 1	Previous week	0.37 : 1

Observation - The PCR shows a tilt towards the bulls as the ratios are showing higher long 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 a portion of shorts build up on the short sales have been assigned in the June expiry. 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	105	83	22
1450 CE	22	57	35
1550 CE	80	37	43
1600 CE	114	25	89
1400 CE	04	14	10
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1450 PE	99	53	46
1400 PE	66	26	40
1370 PE	19	23	04
1500 PE	70	21	49
1800 PE	12	17	05

Observation - The index contracts show which way the players are tilting. The outstanding positions seem to have decreased all round in the previous week. The bulls have reduced Rs 109 Crs. Our inference is - watch the 1450 support levels for the coming week. The bears have reduced Rs 126 Crs. That shows a tendency towards covering shorts at lower levels ahead of expiry. 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
Tisco	240	220	20
Reliance	222	219	03
SBI	154	164	10
Infosys	151	158	07
Telco	151	137	14
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Infosys 5500 calls	08	11	03
Tisco 300 calls	21	11	10
SBI 420 calls	01	08	07
Satyam 300 Calls	24	08	16
Tisco 280 calls	10	08	02

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Telco. This week Infosys has replaced ONGC in the top 5 list. Outstanding open interest in most of the stocks has been stagnant - a positive phenomena after expiry as it shows a lack of panic selling. 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, SBI, 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

 

Data not available from NSE

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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