The Derivatives Denizen

Your one stop derivatives guide.

March 27, 2004

Markets bounce back. Volumes down.

Outstanding long positions come off on expiry.

The markets have risen by approximately 1.5 % on a week-on-week basis as the bears pared positions at lower levels. The Outstanding net long positions are down approximately 25 % on a week-on-week basis. This is a routine phenomena due to expiry of contracts. The traded volumes were down 3 %. The outlook appears marginally improved 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 over for now. 

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1330 566
Stock futures	4324 653
Index options		242 46	100 161	142 207
Stock options		411 1100	143 295	268 805
Total Futures	5654 1219	Total options - net	410 598
Gross longs ( F+O )	6,307 2273	Net longs ( F+O )	6,064 1817

Observation - The outstandings have decreased as the above table indicates. This is a routine phenomena due to expiry of contracts. The noteworthy aspect is the rise in Nifty calls and a fall in Nifty puts. That shows a short covering tendency at lower levels. This development imbibes hope in the near term. The overall picture shows a continued withdrawal of resources from the markets. A major part of this can be attributed to the expiry of March series. Our investors will recall that we have been advocating a near term support on bear covering at lower levels. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 8,580 crs, net long positions Rs 7,881 crs.

Source - The National Stock Exchange.

The traded volumes have fallen - a negative sign as it signals a falling retail participation. A major part of this can be attributed to the expiry of March series. In the futures segment, the action is on the individual stocks as traders are taking focused views on stocks rather than a bouquet approach on the indices. We expect this trend to continue in the near term. 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 19 - Rs crores	Mar 26 - Rs. crores	Change - Rs crores
Index Futures	22,912	20,116	2,796
Stock futures	28,083	29,647	1,564
Totals - a	50,995	49,763	1,232
Index calls	1,279	1,428	149
Stock calls	2,722	2,101	621
Totals - b	4,001	3,529	472
Index puts	951	803	148
Stock puts	1,101	1,055	46
Totals - c	2,052	1,858	194
Grand totals ( a+b+c)	57,048	55,150	1,898

Source - The National Stock Exchange.

PCR - Index	0.42 : 1	Previous week	0.35 : 1
PCR - Stocks	0.28 : 1	Previous week	0.26 : 1
PCR - Total	0.30 : 1	Previous week	0.27 : 1

Observation - The PCR shows a tilt towards the bears as the ratios are showing slack long positions on a week-on-week basis. The bulls seem to have let a majority of their calls expire without creating commensurate positions in the next month series. The total PCR still remains positive. The equilibrium point is 0.50 : 1. Our investors may refer to the previous weeks edition wherein it was clearly mentioned that support would come on the downsides. 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
1750 CE	83	54	29
1700 CE	05	50	45
1800 CE	116	39	77
1730 CE	19	15	04
1760 CE	21	10	11
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1750 PE	43	13	30
1900 PE	11	10	01
1730 PE	18	07	11
1670 PE	00	15	15
1700 PE	14	31	17

Observation - The index contracts show which way the players are tilting. The outstanding long positions seem to have decreased. However, it should be noted that the entire logistics have changed due to expiry and a realistic comparision will be possible only next week onwards. Our inference is - watch the 1700 levels for coming week. The undertone appears optimistic 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	470	422	48
ONGC	460	414	46
Reliance	423	380	43
SBI	338	329	09
Telco	309	262	47
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Reliance 540 calls	21	17	04
Reliance 520 calls	08	17	09
ONGC 840 calls	04	14	10
Tisco 380 calls	07	13	06
Tisco 400 calls	21	11	10

Observation - The action remains polarised around the same big five counters - ONGC, Tisco, SBI, Reliance & Telco. Outstanding open interest in all the stocks has fallen - a routine phenomena in the expiry week. Watch Reliance, SBI and Tisco 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 1700 - 1800 on the long side and Tisco, Reliance & Satyam Computers 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.

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 has increased across the board - a sign of the markets are likely to see volatility in direction.

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 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. Technology stocks are likely to remain in the focus of the trading pattern.

 

Indices - volatility

Underlying Underlying Volatility Underlying Ann. Volatility Futures Volatility Futures Ann. Volatility         CNX-IT 2.02 38.59 2.09 40.11 NIFTY 1.59 30.51 1.63 31.19 Aggregates 1.80 34.55 1.86 35.65

The index volatility is on the rise which shows a higher 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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