The Derivatives Denizen

Your one stop derivatives guide.

March 06, 2004

Markets rocket higher with strength. Upward momentum builds up.

Improvement in outstanding long positions imbibe confidence.

The markets have risen by approximately 4 % on a week-on-week basis as the bulls lent support at lower levels. The Outstanding net long positions are up approximately 23 % on a week-on-week basis. The traded volumes were marginally lower and the net short positions have risen in tandem with the long positions. The outlook appears improved over the previous week as the upward movement is gaining momentum based on across the board improvement in long positions, higher implied volatility and liquidity spreading to the mid month series even at this early date.

Market internals - outstandings

Description	Rupees crores	Call options	Put options	Net position
Index Futures	1536
Stock futures	5282
Index options		362	240	122
Stock options		960	327	633
Total Futures	6818	Total options - net	755
Gross longs ( F+O )	8140	Net longs ( F+O )	7573

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 Nifty outstandings are not keeping pace with the individual stock positions as the players are taking bets on stocks like GAIL, Hind Lever & ONGC. Click here to view previous weeks file

Note - Previous weekend gross long positions Rs 6,824 crs, net long positions Rs 6,252 crs.

Source - The National Stock Exchange.

The traded volumes have risen - a positive sign as it signals an increased retail participation. 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	Feb 27- value - Rs. crores	Change - Rs crores
Index Futures	4461	3782	679
Stock futures	8320	7254	1066
Totals - a	12,781	11,036	1,745
Index calls	239	223	16
Stock calls	748	653	95
Totals - b	987	876	111
Index puts	152	97	55
Stock puts	183	201	18
Totals - c	335	298	37
Grand totals ( a+b+c)	14,103	12,210	1893

Source - The National Stock Exchange.

PCR - Index	0.68 : 1	Previous week	0.37 : 1
PCR - Stocks	0.28 : 1	Previous week	0.24 : 1
PCR - Total	0.30 : 1	Previous week	0.25 : 1

Observation - The PCR shows a tilt towards the bears as the ratios are showing rising short 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 negative tilt shows that the coming week will see stock specific activity. 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	27	81	54
Mar 1800 CE	75	65	10
Mar 1850 CE	41	56	15
Mar 1860 CE	04	17	13
Mar 1820 CE	14	17	03
Puts	Previous week Rs Crs	Current Rs crores	Change Rs Crs
Mar 1800 PE	28	63	35
Mar 1850 PE	06	45	39
Mar 1750 PE	23	35	12
Mar 1810 PE	03	15	12
Mar 1820 PE	02	14	12

Observation - The index contracts show which way the players are tilting. The outstanding short positions seem to have increased all round. The fact that the 1800 & 1850 series has seen significant bear activity show that the bears are on the defensive 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 75 crores in the top 5 contracts and the bears have increased Rs 110 crores. Our inference is - watch the 1850 - 1900 levels for coming week. The undertone appears positive. 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	534	586	48
SBI	340	384	44
Reliance	374	331	43
GAIL	186	298	112
Telco	275	291	16
Options	Previous week Rs Crs	Current Rs. Crores	Change Rs Crs
Tisco 450 calls	19	29	10
Telco 540 calls	18	25	07
Reliance 580 calls	13	24	11
Telco 560 calls	18	23	05
Tisco 440 calls	15	23	08

Observation - The action remains polarised around the same big four counters - Tisco, SBI, Reliance & Telco. Outstanding open interest in all the stocks has risen - barring Reliance which has seen a rapid slide recently. Reliance being heavily weighted in the indices is likely to determine the market trends in the coming days.GAIL has been a surprise entrant entrant since Friday, displacing Tata Power which was a short term feature of the big 5 club. 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 1850 - 1900 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 Vol	Underlying Ann. Vol	Futures Vol	Futures Ann. Vol
DR REDDY	4.89	93.44	4.79	91.59
POLARIS	4.63	88.45	4.72	90.3
ARVIND MILL	4.1	78.42	4.08	78.13
IPCL	4.35	83.24	4.08	78
CANBANK	3.78	72.23	3.94	75.43
GAIL	3.68	70.33	3.79	72.55
BANK INDIA	3.62	69.23	3.73	71.32
NIIT	3.58	68.44	3.69	70.59
ONGC	3.52	67.43	3.68	70.39
NATIONALUM	3.46	66.21	3.58	68.44
BANK BARODA	3.5	66.93	3.55	67.94
PNB	3.45	66	3.51	67.06
ORIENT BANK	3.29	62.97	3.38	64.76
SCI	3.37	64.4	3.38	64.74
ANDHRA BANK	3.23	61.81	3.33	63.76
MARUTI	3.27	62.62	3.32	63.53
IOC	3.11	59.51	3.26	62.46
SATYAM COMP	3.19	60.95	3.26	62.45
TATA MOTORS	3.22	61.7	3.26	62.45
BPCL	3.24	61.97	3.22	61.55
TATA POWER	3.14	60.05	3.2	61.16
M&M	3.04	58.24	3.16	60.54
BSES	3.25	62.11	3.09	59.17
SYNDICATE BANK	3.01	57.62	3.08	59
HCL TECH	3.01	57.62	3.08	58.94
ACC	2.83	54.16	2.98	57.11
ICICI BANK	3.07	58.79	2.98	56.98
HERO HONDA	2.99	57.29	2.96	56.58
BHEL	3.02	57.83	2.95	56.47
TISCO	2.81	53.79	2.91	55.73
BAJAJ AUTO	2.97	56.78	2.88	55.15
HIND PETRO	2.79	53.43	2.84	54.34
UNION BANK	2.52	48.32	2.82	53.98
TATA TEA	2.71	51.92	2.8	53.67
MASTEK	2.71	51.89	2.72	52.02
GUJ AMB CEM	2.51	47.97	2.72	52
SBI	2.54	48.71	2.64	50.56
I-FLEX	2.6	49.8	2.59	49.58
L&T	2.64	50.44	2.59	49.54
GRASIM	2.53	48.5	2.5	47.81
HINDALC0	2.68	51.32	2.49	47.72
MTNL	2.35	44.92	2.49	47.59
BEL	2.37	45.37	2.41	46.07
HIND LEVER	2.28	43.72	2.31	44.13
INFOSYS TECH	2.3	43.99	2.24	42.98
WIPRO	2.24	42.79	2.23	42.62
RELIANCE	2.08	39.78	2.14	40.93
HDFC	2.1	40.27	2.04	39.15
CNX-IT	1.97	37.68	2.04	38.97
CIPLA	2.01	38.42	1.98	37.9
ITC	2	38.27	1.93	37.01
NIFTY	1.73	33.11	1.79	34.25
RANBAXY	1.67	31.98	1.74	33.39
HDFC BANK	1.77	33.94	1.71	32.79
DIGITAL EQP	0.82	15.73	0.86	16.56
Aggregates	2.90	55.50	2.93	56.17

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 Vol	Underlying Ann. Vol	Futures Vol	Futures Ann. Vol
HIND LEVER	2.28	43.72	2.31	44.13
INFOSYS TECH	2.3	43.99	2.24	42.98
WIPRO	2.24	42.79	2.23	42.62
RELIANCE	2.08	39.78	2.14	40.93
ITC	2	38.27	1.93	37.01
Aggregates	2.18	41.71	2.17	41.53

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 however up on a week-on-week basis.

 

Indices - volatility

Underlying	Underlying Vol	Underlying Ann. Vol	Futures Vol	Futures Ann. Vol
CNXIT	1.97	37.68	2.04	38.97
NIFTY	1.73	33.11	1.79	34.25
Aggregates	1.85	35.39	1.91	36.61

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	71 %	07 %		ACC ++	3,87,000
GAIL	64 %	14 %		Andhra Bank	2,02,400
IPCL	74 %	18 %		Arvind Mills	2,63,200
Polaris	60 %	05 %		Bank of Baroda	1,14,800
SCI	79 %	04 %		Bank of India	1,48,200
Tisco	63 %	07 %		BHEL	1,27,200
				BPCL	2,62,900
				Canbank ++	1,72,800
				GAIL ++	27,88,500
				Guj Amb Cem	3,61,900
				Hind Lever +++	6,88,000
				HPCL	3,19,800
				ICICI ++	1,65,200
				IOC ++	5,49,600
				ONGC +++	8,31,600
				Oriental Bank ++	1,47,600
				PNB	2,08,800
				SBI ++	2,51,000
				SCI	5,69,600
				Syndicate Bank	1,06,400
				Telco	1,68,300
				Tata Power ++	4,78,400
				Tisco ++	3,70,800
				CNX IT ++	880
				Nifty +++	55,000
Index longs	19,48,400			Nifty shorts	13,24,040

Stars of the week

Stock	Open interest	Stock price	Outlook
GAIL	Up	Up
Hind Lever	Up	Down
IPCL	Up	Up
ONGC	Up	Up

 

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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