Short-end contracts attract interest

Anup Menon

OVERALL Trends: Trading in the cash market was positive for most part of the week. On a week-on-week basis, the BSE Sensex gained close to 5.5 per cent to close at 3935.7 points.

Moving in sympathy with the Sensex, the Nifty gained close to 5.4 per cent to close the week at 1242.1 points. The trends in the futures markets mirrored that of the spot market.

The Sensex November contract ended the week up by around 5.2 per cent at 3946.7 points. For the same maturity on the Nifty, the contract ended the week at 1249.1 points, up by around 5.1 per cent as compared to the previous week.

Trading statistics: During the week, volumes trends between the markets have been divergent. The total volumes on the Sensex contracts more than doubled with close to 3386 contracts being traded as compared to 1,392 contracts traded in the previous week.

The rise in volumes has been largely on account of higher market interest in the one-month contract. Meanwhile, at the NSE, volumes dropped marginally by around 3 per cent to 1,465 contracts as compared to 1,514 contracts traded the week before.

Nifty November: The Nifty November contract was the most actively traded contract in the Nifty series. Close to 1,281 contracts were traded as compared to 782 contracts the week before. As indicated in the previous week, the valuation of the contract would not have yielded profit-booking opportunities during the week.

However, based on the last day of trading, the implied cost of carry on the contract works out to around 6 per cent. Investors can consider taking a long position in the contract at current levels.

Nifty December: The Nifty December contract did not attract much interest during the week. This is evident from the fact that the total traded volumes was just 116 contracts. The open interest in the contract at the end of the week was around 75 contracts. The valuation of the contract based on the last day of trading provides very little scope for arbitrage. The implied cost of carry on the contract works out to around 8 per cent. With liquidity also being a problem, investors can avoid taking fresh positions in the contract.

Nifty January: Volumes in the Nifty January contract have been on the lower end. Only 68 contracts were traded during the week. However, the valuation of the contract may provide some opportunity for arbitrage. The implied cost of carry on the contract based on the last day's trading works out to around 6.50 per cent. Investors with a penchant for risk can consider taking a long position in the contract.

Sensex November: Trading in the Sensex November contract has been fairly active. Close to 3,088 contracts were traded during the week as compared to 696 contracts the week before. As indicated in the previous week, investors who initiated a long position in the previous week could have booked profits during the week.

The valuation of the contract based on the last day of trading provides scope for arbitrage. The implied cost of carry based on the last day of trading works out to around 3 per cent. Investors can consider taking a long position in the contract.

Sensex December: The Sensex December contract was active to some extent with close to 210 contracts being traded during the week. The valuation of the contract based on the last day of trading provides some scope for arbitrage. The implied cost of carry on the contract worked out to around 2 per cent. Investors with a moderate risk profile can consider taking long positions in the contract.

Sensex January: The valuation of the Sensex January contract does not provide much scope for arbitrage. The implied cost of carry on the contract works out to around 7.26 per cent. Given that liquidity may also be a constraint, fresh investments in the contract need not be considered.