The Derivatives Denizen.

Your one stop derivatives guide.

July 17, 2004

Markets consolidating after budget.

FII outstanding long positions at 3100 crs.

The markets have been flat on 15 % lower volumes as the retail participants seem to have abstained this week. The bulls are trying to tighten their grip on the markets, and the turnover tax issue along with the monsoons remain the only hurdles. The Outstanding net long positions are up approximately 10 % on a week-on-week basis. This is a positive development as the OI has risen in the futures segment. The outlook appears cautiously optimistic as the markets are above a support base at the 1510 levels which if violated, will see 1480 levels. The Nifty futures continue to trade at a discount to cash of Rs 10, which implies continued short selling by bears at higher levels, as well as by bulls who are hedging their stock longs.

Market internals - outstandings - all Rs crores

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1,688 138
Stock futures	3,417 451
Index options		787 93	597 78	190 15
Stock options		772 112	400 128	372 16
Total Futures	5,105 589	Total options - net	562 01
Gross longs ( F+ O )	6,664 794	Net longs ( F+ O )	5,667 588

Observation - The net out-standings have increased as the above table indicates. The rise in out-standings has been in the Nifty futures and stock futures, which is a positive development. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 5,870 crs, net long positions Rs 5,079 crs.

Source - The National Stock Exchange.

It maybe noted that FII's now hold approximately Rs 3,100 crs in open interest which is a substantial portion of the entire market open interest. Though this means that FII's are unlikely to unwind this exposure totally, the fact is, 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 July 15, 2004. That indicates buying in the near term. Sales are seen in the cash segment, which shows a bias towards hedging of positions in the short term. We advocate monitoring these figures carefully.

Source - The National Stock Exchange.

The traded volumes have fallen - a negative sign as the markets have risen on lower volumes amidst a pullback. The traded turnover was lower in the futures segment. We want this trend to reverse 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	13,108	10,292	2,816
Stock futures	16,854	16,148	706
Totals - a	29,962	26,440	3,522
Index calls	1,923	944	979
Stock calls	1,811	1,324	487
Totals - b	3,734	2,268	1,466
Index puts	1,310	737	573
Stock puts	608	535	73
Totals - c	1,918	1,272	646
Grand totals ( a+b+c)	35,614	29,980	5,634

Source - The National Stock Exchange.

PCR - Index	0.79 : 1	Previous week	0.78: 1
PCR - Stocks	0.47 : 1	Previous week	0.37 : 1
PCR - Total	0.52 : 1	Previous week	0.42 : 1

Observation - The PCR shows a tilt towards the bears as the ratios are showing higher short positions on a week-on-week basis. The Nifty PCR has seen some short selling, and remains outright bearish, the shorts have risen faster than the longs. This implies that the bears are unwilling to surrender their positions. This ( PCR ) will be the one of the most reliable indicator of market trends. The total PCR has turned negative. 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	143	189	46
1550 CE	138	168	30
1600 CE	121	126	05
1650 CE	80	72	08
1700 CE	37	37	00
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
1500 PE	162	174	12
1450 PE	136	124	12
1400 PE	56	58	02
1520 PE	09	53	44
1550 PE	56	83	27

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 73 Crs. Our inference is - watch the 1510 support levels for the coming week. The bears have added Rs 73 Crs. That shows a tendency towards adding  shorts at lower strike prices. 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
Reliance	236	315	79
Infosys	215	251	36
Tisco	212	281	69
Telco	158	162	04
SBI	163	180	17

Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
RIL 440 Calls	22	25	03
Satyam 330 calls	13	20	07
Tisco 320 calls	14	19	05
RIL 430 calls	14	19	05
Tisco 300 calls	20	18	02

Observation - The action remains polarised around the same big counters - Tisco, Reliance, SBI & Telco. Outstanding open interest in all the stocks has risen - a positive phenomena as it shows accumulation. 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, 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.

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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