The Derivatives Denizen.

Your one stop derivatives guide.

Aug 14, 2004

Markets see squaring up operations. Bulls on back foot.

FII outstanding long positions at 2880 crs.

The markets have fallen 2 % higher on 5 % higher volumes as the retail participants seem to have pared their exposure this week. The bulls seemed to have lost their grip on the markets for now, oil prices are the immediate concern. The Outstanding net long positions are up approximately 8 % on a week-on-week basis. This is a positive development as the OI has increased in the stock fuftures segment. The outlook appears to be cautious as the markets are below a support at the 1603 levels which if violated on a continous close basis, will see 1560 levels. The Nifty futures trade at par to cash, which implies continued short covering by bears at lower levels, as well as by bulls who are paring their longs. The stocks of the week are likely to be Tisco, Reliance and ONGC.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,529  51
Stock futures	4,224 195
Index options		420 94	346 67	74  27
Stock options		1147 326	345 72	802  254
Total Futures	5,753 144	Total options - net	876 281
Gross longs ( F+ O )	7,320 564	Net longs ( F+ O )	6,629 425

Observation - The net out-standings have increased as the above table indicates. The fall in out-standings has been in the Nifty futures, which is a positive development as there has been bear covering. The bulls have shifted their long positions to the options segment - which shows a defensive approach. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 6,756 crs, net long positions Rs 6,204 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold approximately Rs 2,880 crs in open interest which is a substantial portion of the entire market open interest. 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 Aug 12, 2004. That indicates selling in the near term. Sales of Rs 148 crs are seen in the cash segment on that day, which shows a bias towards cutting of long positions in the short term. We advocate monitoring these figures carefully.

Source - The National Stock Exchange.

The traded volumes have risen - a negative sign as the markets have fallen on higher volumes amidst a strong profit taking phase. The traded turnover was lower in the stocks segment in the futures and calls in options segment. We want the volumes to continue rising in the coming week if the markets are to see retail participation. The combination of traded volumes, open interest and market breadth are a reliable indicator of the undercurrents. The outlook appears cautious in the short term. Click here to view previous weeks file

Description	Previous week - Rs. crores	Current - Rs. crores	Change - Rs crores
Index Futures	12,455	14,863	2,408
Stock futures	24,232	23,425	807
Totals - a	36,687	38,288	1,601
Index calls	736	1,037	301
Stock calls	2,062	2,028	34
Totals - b	2,798	3,065	267
Index puts	542	775	233
Stock puts	526	583	57
Totals - c	1,068	1,358	290
Grand totals ( a+b+c)	40,553	42,711	2,158

Source - The National Stock Exchange.

PCR - Index	0.85 : 1	Previous week	0.88: 1
PCR - Stocks	0.29 : 1	Previous week	0.31 : 1
PCR - Total	0.32 : 1	Previous week	0.34 : 1

Observation - The PCR shows a tilt towards the bulls as the ratios are showing squaring up of 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. This implies that the bears are unwilling to enhance their positions. This ( PCR ) will be the one of the most reliable indicator of market trends. The total PCR has remained positive. 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	83	98	15
1650 CE	59	87	28
1640 CE	39	45	06
1660 CE	37	39	02
1620 CE	22	32	10
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1600 PE	107	119	12
1550 PE	62	72	10
1500 PE	41	43	02
1650 PE	15	22	07
1640 PE	19	21	02

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 61 Crs. Our inference is - watch the 1580 support levels for the coming week. The bears have added Rs 33 Crs. That shows a tendency towards squaring up shorts at lower prices. 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

Source - The National Stock Exchange.

5 Highest outstanding scrips

Futures	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco	509	482	27
Telco	312	370	58
Reliance	299	357	58
SBI	243	273	30
ONGC	154	241	87

Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 266.65 calls	35	41	06
Tisco 273.35 Calls	40	39	01
Tisco 280 calls	31	37	12
Reliance 500 calls	22	37	12
Satyam 350 calls	19	27	02

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Infosys. Outstanding open interest in most of the stocks has risen - a positive phenomena. Watch Reliance for directional guidance in the coming week, as we have been emphasising since a month. 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 1600 - 1600 on the long side and Satyam Computers, 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 2 months. 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

 

Underlying Underlying Volatility Underlying Ann. Volatility Futures Volatility Futures Ann. Volatility CNX-IT 1.46 27.93 1.50 28.69 NIFTY 1.32 25.28 1.46 27.94 Aggregates 1.39 26.60 1.48 28.31

The index implied volatility is on the descent which shows a the markets are moving higher with relative ease.

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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