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In-the-money November Calls in great demand

B. Venkatesh

THE bullish sentiment in the spot market rubbed off on the derivatives segment as well. The following are some of the pointers from Tuesday's trading:

Index options: Calls on the actively traded strikes were up while the puts on these strikes were down. The in-the-money calls were in greater demand, suggesting that the dealers were sceptical of the dominance of the rally in the spot market. The Novembe r 1000 calls closed Rs 6.3 higher at Rs 20 with volumes amounting to 265 contracts. The open interest now stands at 1469 contracts.

A rising put-call ratio in the 1000 strike suggests that dealers are increasingly becoming sceptical of the call expiring in-the- money. The probability of the call expiring in-the-money is currently 0.55, and the gamma points are low for the dealers to significantly benefit from any upmove in the underlying The November 1000 puts closed Rs 9.55 down at Rs 27.60, with volumes amounting to 103 contracts.

The put appears overpriced at the current levels, based on an option valuation model.The November 980 calls closed Rs 10 higher at Rs 29.85, with volumes amounting to 251 contracts. The probability of the call ending in-the-money is high at 0.75.There wa s a sharp increase in the put-call ratio during the day''s trading, suggesting that dealers perceived value in the 980 puts, which are currently out-of-the-money.

The November 1020 calls closed Rs 4.15 higher at Rs 12.50, with volumes amounting to 67 contracts. The probability of the option expiring in-the-money is low at 0.38, well below the probability of the puts ending in-the-money.

Single-stock options: The November options on L&T, Sterlite and Satyam were in good demand. The November 170 calls on L&T calls closed 50 per cent higher at Rs 11.80, with volumes amounting to 356 contracts. The 170 calls are currently in-the-money as th e stock closed at Rs 177.50 in the spot market. The break-even for the call buyer is 182.Trading signals suggest bullish outlook on L&T the probability of the calls expiring in-the-money is 0.79, which is nearly twice that of the put ending in-the-money.

There was also good demand for the L&T 160 calls, which closed at Rs 19.90, with volumes amounting to 297 contracts. November 120 calls on Sterlite closed 90 per cent higher at Rs 14.85, with volumes amounting to 311 contracts. Like L&T, the outlook on S terlite appears bullish what with the probability of the calls ending in-the-money is nearly thrice that of the put ending in-the-money.

Futures: All three contracts moved up, but they were still trading at a discount to the spot market.The November futures contract closed 17 points higher at 993. For the second consecutive day, it appears that the money is moving out of the contract. Thi s may be a factor to watch for those who want to go long on the contract.The December contract closed 16 points higher at 990.30, while the January contract closed 18 points higher at 991.35.