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Positive outlook on VSNL, Reliance Petro?

B. Venkatesh

THE sentiment in the derivatives segment was somewhat optimistic, with dealers demanding out-of-the-money index calls and at-the-money equity calls. Here are some of the pointers:

Equity options: The December 240 calls on VSNL closed at Rs 13.75, with volumes amounting to 156 contracts. The open interest in the calls now stands at 203 contracts.

The outlook on the stock appears positive, and a demand consolidation will confirm the trend. Volumes in the single-stock futures segment have increased in the last few days, as have the volumes in the December 240 and 260 calls. This suggests that the d ealers perceive value in the stock.]

Dealers should note that the probability of the VSNL 260 calls ending ITM is 0.33. Loss due to time decay is 0.24 points for each day lapsed during the life of the option. The historical stock volatility has increased in the last few days, which makes th e option valuable to the buyers.

The December 170 calls on ACC closed Rs 6.55, with volumes amounting to 130 contracts. The open interest in the calls stands at 314 contracts. The outlook on ACC does not appear very positive; volumes in the 170 and 180 calls have dropped in the last few days. This is despite the rise in volumes in the single-stock futures segment.

The historical volatility on the stock has fallen sharply in the last few days, which makes the option less valuable on the buyer. The probability of the ACC 180 calls ending ITM is 0.29.

The December 35 calls on Reliance Petro closed at Rs 1.25, with volumes amounting to 225 contracts. The open interest in the calls now stands at 2290 contracts.

After a somewhat negative outlook in the last few days, volumes in the single-stock futures segment and December 35 and 40 calls were up during the day. The positive outlook on the stock will be confirmed only if the demand consolidates in the OTM calls.

Dealers should note that the historical volatility on the stock has dropped, which makes the option less valuable to the buyers. The probability of the December 35 calls ending ITM is 0.40.

Index options: The demand continued to remain good for December 1140 and 1120 calls, which are OTM by 33 points and 13 points respectively. The demand consolidation in these OTM calls suggests that the dealers perceive the market to move up from the curr ent levels.

The December 1120 call buyers will breakeven if the index moves above 1137. This means that the market has to move up by 30 points or 3 per cent from the current levels.

Index futures: The December contract closed at a small premium to the spot, while the January and February contracts closed at a discount. Like index options, the trading pattern in index futures seems to suggest that the dealers perceive an upmove in th e broad market.