The Derivatives Denizen

Your one stop derivatives guide.

March 20, 2004

Markets shed another 5 %. Volumes drying down.

Outstanding long positions come off monthly highs.

The markets have fallen by approximately 5 % on a week-on-week basis as the bulls pared positions at higher levels. The Outstanding net long positions are down approximately 3 % on a week-on-week basis. The traded volumes were down 19 %. The outlook appears shaky as the markets clearly seek supports at lower levels. The support levels of below 1700 have 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. The indicators seem to indicate that the worst is clearly not over. 

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1896 301
Stock futures	4977 304
Index options		196 321	261 04	- 65 325
Stock options		1511 127	438 08	1073 119
Total Futures	6873 03	Total options - net	1008 206
Gross longs ( F+O )	8,580 197	Net longs ( F+O )	7,881 209

Observation - The outstandings have decreased as the above table indicates. That is a sign of the bulls going further on the back foot. The action is seen shifting from the futures to the options segment. The traders seem to feel that rallies are likely to be stock specific with the Nifty come down on the while. That explains why the calls on Nifty have shrunk considerably whereas the puts have inched up. The overall picture shows a continued withdrawal of resources from the markets. A part of this can be attributed to the impeding expiry of March series. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 8,777 crs, net long positions Rs 8,090 crs.

Source - The National Stock Exchange.

The traded volumes have fallen - a negative sign as it signals a falling retail participation. The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears shaky as the table below indicates.

Description	Mar 12 - Rs crores	Mar 19 - Rs. crores	Change - Rs crores
Index Futures	19,596	22,912	3,316
Stock futures	39,490	28,083	11,407
Totals - a	59,086	50,995	8,091
Index calls	1,060	1,279	219
Stock calls	4,004	2,722	1,282
Totals - b	5,064	4,001	1,063
Index puts	836	951	115
Stock puts	1,176	1,101	75
Totals - c	2,012	2,052	40
Grand totals ( a+b+c)	66,162	57,048	9,114

Source - The National Stock Exchange.

PCR - Index	0.35 : 1	Previous week	0.51 : 1
PCR - Stocks	0.26 : 1	Previous week	0.28 : 1
PCR - Total	0.27 : 1	Previous week	0.29 : 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. Only 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	126	123	03
Mar 1800 CE	83	116	33
Mar 1850 CE	79	87	08
Mar 1750 CE	05	83	78
Mar 1780 CE	13	33	20
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
Mar 1750 PE	46	43	03
Mar 1800 PE	65	38	27
Mar 1850 PE	38	27	11
Mar 1730 PE	00	18	18
Mar 1700 PE	00	14	14

Observation - The index contracts show which way the players are tilting. The outstanding long positions seem to have increased significantly. The fact that the 1800 & 1750 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 short positions has come at the 1700 - 1730 strike band. The bulls have added Rs 136 crores in the top 5 contracts and the bears have reduced Rs 09 crores. Our inference is - watch the 1700 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	547	470	77
Telco	353	309	44
SBI	349	338	11
Reliance	306	423	117
ONGC	326	460	134
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Telco 520 calls	43	40	03
Tisco 450 calls	37	32	05
Telco 540 calls	36	32	04
Reliance 600 calls	33	32	01
Telco 500 calls	31	31	00

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 Reliance which had seen a rapid slide recently and ONGC which is moving against the markets. The reduction of open interest in the options segment 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 1700 - 1750 on the long side and Tisco, Reliance, Satyam Computers & 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 3.81 72.97 3.90 74.62 NIIT 3.74 71.57 3.83 73.2 ARVINDMILL 3.74 71.48 3.74 71.54 DR REDDY 3.75 71.69 3.63 69.44 SCI 3.57 68.35 3.60 68.85 CANBK 3.28 62.79 3.41 65.33 PNB 3.41 65.28 3.41 65.23 ORIENT BANK 3.34 63.91 3.40 65.00 HERO HONDA 3.42 65.40 3.36 64.36 IPCL 3.95 75.48 3.36 64.30 GAIL 3.24 61.91 3.31 63.40 BANK BARODA 3.11 59.47 3.17 60.57 ONGC 3.27 62.50 3.11 59.60 TATA POWER 3.00 57.46 3.08 58.85 BANK INDIA 2.94 56.21 3.05 58.34 IOC 2.85 54.54 3.03 57.93 SATYAM COMP 2.96 56.57 3.02 57.78 TISCO 2.86 54.81 2.98 57.04 TATA MOTORS 2.95 56.41 2.97 56.84 BAJAJ AUTO 2.92 55.86 2.92 55.81 HIND PETRO 2.90 55.51 2.89 55.24 TATATEA 2.78 53.27 2.89 55.23 NATIONAL ALUM 2.81 53.79 2.87 54.95 BPCL 2.82 53.96 2.86 54.81 MARUTI 2.72 52.00 2.80 53.54 ACC 2.61 49.97 2.79 53.32 ANDHRABANK 2.70 51.70 2.77 53.05 M&M 2.61 49.90 2.75 52.67 REL 2.72 51.99 2.71 51.96 SYNDICATE BAN 2.62 50.11 2.69 51.50 UNION BANK 2.51 48.04 2.69 51.42 GUJ AMB CEM 2.53 48.50 2.64 50.52 ICICI BANK 2.76 52.76 2.63 50.43 HCL TECH 2.51 47.96 2.60 49.68 MASTEK 2.51 48.13 2.59 49.56 BHEL 2.53 48.40 2.50 47.82 SBIN 2.36 45.08 2.46 47.10 GRASIM 2.45 46.86 2.44 46.75 INFOSYS 2.48 47.55 2.44 46.67 L&T 2.39 45.76 2.40 45.88 I-FLEX 2.34 44.84 2.38 45.53 HIND LEVER 2.34 44.70 2.32 44.33 BEL 2.33 44.65 2.30 44.13 MTNL 2.17 41.48 2.26 43.23 WIPRO 2.21 42.32 2.23 42.63 CIPLA 1.99 38.16 2.09 40.10 RELIANCE 2.05 39.29 2.07 39.72 HINDALCO 2.06 39.39 1.93 37.03 CNXIT 1.93 36.92 1.93 36.88 HDFC 1.95 37.26 1.84 35.20 ITC 1.83 35.04 1.76 33.73 NIFTY 1.59 30.43 1.65 31.58 HDFC BANK 1.51 28.86 1.52 29.12 RANBAXY 1.44 27.65 1.49 28.65 DIGITALEQ 0.62 11.89 0.69 13.24 Aggregates 2.66 51.06 2.69 51.54

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 2.48 47.55 2.44 46.67 HIND LEVER 2.34 44.7 2.32 44.33 WIPRO 2.21 42.32 2.23 42.63 RELIANCE 2.05 39.29 2.07 39.72 ITC 1.83 35.04 1.76 33.73 Aggregates 2.18 41.78 2.16 41.41

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 up 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         CNXIT 1.93 36.92 1.93 36.88 NIFTY 1.59 30.43 1.65 31.58 Aggregates 1.76 33.67 1.79 34.23

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.

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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