Oct contract pulls down volume sharply

Anup Menon

OVERALL trends: Trading in the cash market was range-bound for a major part of the previous week. The rupee ended the week at an all-time low and could have an impact on the cash market next week.

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On a week-on-week basis, the BSE Sensex gained around 1 per cent to close at 3,729.10 points. In the same timeframe, the S&P CNX Nifty managed to gain around 0.6 per cent to close the week at 1,178.7 points. The futures markets followed the path taken by the cash markets. For instance, the Sensex October contract closed the week up by around 0.5 per cent at 3,751. The contract with the same maturity on the Nifty gained around 1.7 per cent to close at 1,188.98 points.

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Trading statistics: During the week, volumes dipped sharply as compared to the previous week. Total volume on the Sensex contracts declined by around 70 per cent to 1,392 contracts as compared to 2,337 contracts traded the week before. The lower volume can be attributed to the decline in the near-term October contract, which matured during the week.

On the NSE, volume declined by around 20 per cent to 1,514 contracts compared to 1,874 contracts traded the week before.

Nifty October: The Nifty October contract matured during the week. Volumes were fairly subdued during the week with close to 782 contracts being traded during the week as compared to 1,464 the week before. The pricing of contract did not provide any opportunity for booking arbitrage profit.

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Nifty November: The Nifty November contract, which was trading in the two-month range, now moves into the one-month trading range. The contracts attracted market interest during the week with trading volumes of close to 685 contracts compared to 405 the week before. As recommended earlier, a long position would have yielded a positive gain of around 20 index points if the position was closed on Wednesday.

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The valuation of the contract based on the last day of trading in the week presents very limited scope for arbitrage. The implied cost of carry on the contract works out to around 9 per cent. Investors can avoid taking fresh positions.

Nifty December: The Nifty December contract moves into the two-month trading range. Initially, given the long time to maturity, interest in these contracts are not likely to be present.

Sensex October: The Sensex October contract matured during the week. Volumes dropped from around 2,047 contracts to around 696. As recommended in the previous week, investors taking a short position could have made gains by closing their position on Monday or Tuesday.

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Sensex November: The Sensex November contract moved into the one-month trading range during the week. Volumes increased from around 253 contracts traded the week before to 696 contracts.

The valuation of the contract provides some scope for arbitrage. The implied cost of carry based on the last day of trading for the one-month contract works out to 6.10 per cent. Investors with a moderate risk profile can consider taking a long position in the contract.

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Sensex December: The Sensex December contract moves into the two-month trading range. Volumes are likely to be sluggish at least in the initial trading sessions. The valuation of the contract based on Friday's close proves some scope for arbitrage. The implies cost of carry on the contract works out to around 3.62 per cent. Investors can consider taking a long position in the contract.