The Derivatives Denizen

Your one stop derivatives guide.

March 13, 2004

Markets plummet 3 % lower. Downward momentum builds up.

Improvement in outstanding long positions imbibe minor confidence.

The markets have fallen by approximately 3 % on a week-on-week basis as the bulls withdrew support at higher levels. The Outstanding net long positions are up approximately 6 % on a week-on-week basis. The traded volumes were up 25 % ( though the figures are not exactly comparable due to a holiday last week). The net short positions have risen slower than the long positions. The outlook appears shaky as the markets clearly seek a clear direction. The support levels of below 1800 has seen bottom fishing and short covering which is a heartening sign in the near term. It is crucial that this buying momentum continue before a clear buy can be put out on the markets.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1595 59
Stock futures	5281 01
Index options		517 155	257 17	260 138
Stock options		1384 424	430 103	954 221
Total Futures	6876 58	Total options - net	1214 459
Gross longs ( F+O )	8,777 637	Net longs ( F+O )	8,090 517

Observation - The outstandings have improved substantially as the above table indicates. That is a sign of comfort as the bulls are now enhancing their overnight exposure. The outstanding shorts are not keeping pace with the long positions as the players are seen covering bear positions at lower levels. This is a sign of comfort. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 8,140 crs, net long positions Rs 7,573 crs.

Source - The National Stock Exchange.

The traded volumes have risen - a positive sign as it signals an increased retail participation ( though the figures are not exactly comparable due to a holiday last week). The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears improved as the table below indicates.

Description	Mar 05 - Rs crores	Mar 12 - value - Rs. crores	Change - Rs crores
Index Futures	15,966	19,596	3,630
Stock futures	31,619	39,490	7,871
Totals - a	47,585	59,086	11,501
Index calls	794	1,060	266
Stock calls	2,738	4,004	1,266
Totals - b	3,532	5,064	1,532
Index puts	527	836	309
Stock puts	690	1,176	486
Totals - c	1,217	2,012	795
Grand totals ( a+b+c)	52,334	66,162	13,828

Source - The National Stock Exchange.

PCR - Index	0.51 : 1	Previous week	0.68 : 1
PCR - Stocks	0.28 : 1	Previous week	0.28 : 1
PCR - Total	0.29 : 1	Previous week	0.30 : 1

Observation - The PCR shows a tilt towards the bulls as the ratios are showing rising long positions on a week-on-week basis. The total PCR still remains positive. The equilibrium point is 0.50 : 1. The fact that the Nifty is showing a positive tilt shows that the downsides maybe limited in the absolute short term. A sustained build up of bullishness will bring the retail traders back in the fray. Open interest and traded volumes will hold the key. 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
Mar 1900 CE	81	126	45
Mar 1800 CE	65	83	18
Mar 1850 CE	56	79	23
Mar 1880 CE	15	27	12
Mar 1820 CE	17	28	11
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
Mar 1800 PE	63	65	02
Mar 1850 PE	45	38	07
Mar 1750 PE	35	46	11
Mar 1840 PE	12	16	04
Mar 1780 PE	09	16	07

Observation - The index contracts show which way the players are tilting. The outstanding short positions seem to have increased insignificantly. The fact that the 1900 & 1850 series has seen significant bullish activity shows that the bulls are optimistic as they are taking postions on out of money contracts,  The increase in long positions has come at the 1800 - 1900 strike band. The bulls have added Rs 109 crores in the top 5 contracts and the bears have increased Rs 17 crores. Our inference is - watch the 1800 levels for coming week. The undertone appears defensive for now. Click here to view previous weeks file

Source - The National Stock Exchange.

5 Highest outstanding scrips

Futures	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco	586	547	39
Telco	291	353	62
SBI	384	349	35
Reliance	331	306	25
GAIL	298	290	08
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 450 calls	29	37	08
Telco 540 calls	25	36	11
Reliance 600 calls	23	33	10
Telco 520 calls	21	43	22
Tisco 440 calls	23	33	10

Observation - The action remains polarised around the same big four counters - Tisco, SBI, Reliance & Telco. Outstanding open interest in all the stocks has fallen - barring Telco which had seen a rapid slide recently. The rise in the options segment has been less than the fall in the futures segment. That is a sign of concern as the tendency has been to offload at higher levels. 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 1800 - 1850 on the long side and Tisco & Telco 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 trader. 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.

Underlying	Underlying Volatility	Underlying Ann. Volatility	Futures Volatility	Futures Ann. Volatility
POLARIS	4.17	79.68	4.27	81.59
DR REDDY	4.31	82.41	4.18	79.88
IPCL	4.54	86.9	3.83	73.35
ARVIND MILL	3.70	70.78	3.69	70.67
NIIT	3.56	68.07	3.69	70.55
CANBK	3.61	69.03	3.69	70.53
GAIL	3.59	68.73	3.67	70.24
ORIENT BANK	3.52	67.33	3.58	68.42
BANK BARODA	3.47	66.41	3.51	67.22
PNB	3.38	64.7	3.47	66.34
ONGC	3.46	66.26	3.41	65.26
BANK INDIA	3.19	61.06	3.29	63.03
NATIONAL ALUM	3.18	60.85	3.27	62.47
HERO HONDA	3.24	62.06	3.17	60.71
SCI	3.15	60.21	3.17	60.66
IOC	3.01	57.60	3.13	59.87
TATA MOTORS	3.04	58.21	3.05	58.39
REL	3.06	58.61	3.05	58.32
BPCL	3.05	58.38	3.04	58.15
HIND PETRO	3.09	59.21	3.03	57.90
SATYAM COMP	2.92	55.96	3.00	57.42
ANDHRA BANK	2.85	54.53	2.95	56.43
TATA POWER	2.83	54.12	2.91	55.66
M&M	2.83	54.07	2.91	55.64
MARUTI	2.86	54.70	2.90	55.55
SYNDICATE BANK	2.80	53.67	2.88	55.15
ACC	2.72	52.07	2.87	54.96
ICICI BANK	3.06	58.49	2.87	54.87
BAJAJ AUTO	2.88	55.07	2.80	53.67
HCL TECH	2.76	52.76	2.80	53.65
GUJ AMB CEM	2.63	50.26	2.80	53.50
BHEL	2.87	54.93	2.79	53.32
TISCO	2.63	50.24	2.71	51.84
UNION BANK	2.44	46.62	2.70	51.67
GRASIM	2.68	51.27	2.65	50.65
MASTEK	2.60	49.67	2.59	49.55
TATA TEA	2.43	46.58	2.53	48.45
L&T	2.53	48.43	2.48	47.52
SBI	2.38	45.61	2.48	47.46
I-FLEX	2.51	48.00	2.48	47.41
MTNL	2.20	42.03	2.30	44.02
INFOSYS TECH	2.35	44.96	2.28	43.68
HIND LEVER	2.28	43.58	2.28	43.62
BEL	2.21	42.40	2.24	42.83
WIPRO	2.21	42.32	2.21	42.36
HINDALC0	2.32	44.41	2.17	41.62
RELIANCE	1.94	37.23	1.96	37.55
CNX IT	1.92	36.77	1.94	37.10
HDFC	1.90	36.40	1.85	35.49
ITC	1.82	34.78	1.73	33.18
CIPLA	1.74	33.35	1.73	33.11
NIFTY	1.62	31.01	1.66	31.80
RANBAXY	1.64	31.34	1.65	31.55
HDFC BANK	1.68	32.21	1.62	30.99
DIGITAL EQP	0.70	13.52	0.79	15.11
Aggregates	2.76	52.90	2.77	53.12

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. Note how the volatility is coming down across the board - a sign of the markets settling down at current levels.

Index heavy-weights - aggregate volatility

Underlying	Underlying Volatility	Underlying Ann. Volatility	Futures Volatility	Futures Ann. Volatility
INFOSYS TECH	2.35	44.96	2.28	43.68
HIND LEVER	2.28	43.58	2.28	43.62
WIPRO	2.21	42.32	2.21	42.36
RELIANCE	1.94	37.23	1.96	37.55
ITC	1.82	34.78	1.73	33.18
Aggregates	2.12	40.57	2.09	40.07

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 volatility in this category is down on a week-on-week basis. The software heavy-weights are relatively higher volatile than the old economy counters.

 

Indices - volatility

Underlying	Underlying Volatility	Underlying Ann. Volatility	Futures Volatility	Futures Ann. Volatility
CNX - IT	1.92	36.77	1.94	37.1
NIFTY	1.62	31.01	1.66	31.8
Aggregates	1.77	33.89	1.8	34.45

The index volatility is on the slide which shows a stock specific appetite as against index trading preference. The trend is likely to continue in the coming week.

Source - The National Stock Exchange.

Changes in outstanding futures positions.

NSE futures saturation list		Daily change		Futures change in open interest over previous day
Arvind Mills	74 %	03 %		ACC ++	1,09,500
GAIL	62 %	02 %		Bank of Baroda	2,04,400
Guj Amb Cem	64 %	06 %		Bank of India ++	1,67,200
IPCL	74 %	18 %		Canbank ++	1,34,400
Mastek	64 %	07 %		GAIL ++	1,57,500
Polaris	61 %	01 %		Grasim	1,02,200
SCI	84 %	05 %		Guj Amb Cem ++	1,83,700
Tisco	65 %	02 %		Hero Honda ++	2,15,200
				Hind Lever +++	4,16,000
				IOC ++	1,08,000
				IPCL ++	12,89,200
				Maruti ++	1,13,600
				MTNL	1,32,800
				ONGC +++	4,01,400
				Polaris ++	1,24,600
				Reliance ++	2,18,400
				Satyam Comp ++	1,20,000
				SBI ++	1,95,000
				Telco ++	1,35,300
				Tisco ++	2,59,200
				CNX IT ++	3,120
				Nifty +++	1,10,400
Index longs	27,77,600			Nifty shorts	14,19,260

Stars of the week

Stock	Open interest	Stock price	Outlook
GAIL	Up	Up
IPCL	Up	Down
Tisco	Up	Down

 

Note - ++ signifies higher open interest in the March & April series simultaneously. Click here to view previous weeks file

 

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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