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C. Raja Rajeshwari

There is nine trading days for the August contracts to expire. With open interest increasing, implied volatility (IV) is bound to rise in the week ahead.

MARKETS were in backwardation for most part of the week. Near month contracts of stocks such as ACC, BHEL, HPCL, M&M, SCI and Tata Motors quoted at higher price than far month - October contracts.

Continuous backwardation reflects bullish sentiments although the increasing option volatility causes concern. There are nine trading days for the August contracts to expire. With open interest increasing, implied volatility (IV) is bound to rise in the week ahead.

Nifty contracts: The benchmark index Nifty has gained 2 per cent to close the week at 1247.75 points. Volumes in index puts have increased owing to the seesaw intraday movements of the index.

The Nifty August futures gained 26.3 points to 1242.25 points. Open interest jumped by 15 per cent. Cost of carry was negative. This indicates a bearish outlook in the near-term. IV of calls jumped from last week's 16.8 per cent to 25.4 per cent, whereas the IV of puts remained the same at 24 per cent. The put-call open interest ratio stood at 0.99. This increase in the ratio from last week's 0.95 indicates weakness in the index in the week ahead.

# The August 1200 call (in-the-money) quoted at Rs 50.1. Open interest stood at 943 contracts

# The August 1270 call (out-of-the-money) closed the week at Rs 10.65

# There was immense selling interest in the deep out-of-the-money August 1200 put.

# Among the September contracts, 1190-strike and the 1230 call had trading interest.

Tata Motors: The spot has gained 4 per cent to Rs 254.4 on a week-on-week basis. The cost of carry clipped from the positive territory to the negative territory in the last week. The IV levels of both calls and puts have decreased. The put-call open interest ratio stood at 0.79. The ratio has decreased from 0.95 of last week. However, a ratio of 0.79 is still high. Gauging by the indicators, there may be weakness in the week ahead.

SBI: The IV of both calls and puts has reduced to 38 per cent (42 per cent). The positive cost of carry has increased over the week. The put-call open interest ratio closed the week at 0.40. For the week ahead the movement of the underlying stock will determine where the trading interest will flow to, whtheter to the calls or to puts. The spot gained Rs 8.75 to close the week at Rs 430.9

Reliance: the stock was range bound (Rs 355 - 365) for the past week. The implied volatility fell in put options (350-strike and 360-strike), with traders writing put options. However overall IV of puts has increased from 28 percent to 30 per cent. The put-call open interest ratio closed the week at 0.35.

Shipping Corporation: The open position as a percentage of the market wide limit is more than 95 per cent. The put-call open interest ratio closed the week at 0.37. The cost of carry, which is positive, has increased this week. The stock has a bullish outlook.

Other counters: Open interest build up was evinced in counters of Tata Steel, SBI, Tata Motors and Tata Power. Owing to this build-up, extra margin may be levied on these contracts, leading to closing off some positions and implied volatility increasing in the coming week.

# Tata Steel shed open interest due to higher margin levied on higher open positions to the market wide limit. Its open interest was 87 per cent of its market wide limit.

# In Maruti, the open position as a percentage of the market wide limit increased to 84 per cent

# IV for Satyam calls and puts decreased after a volatile week to 59 levels whereas the IV for Infosys calls and puts remained range bound between 51 - 54 levels.

# After a high IV of 75 per cent a week ago, the IV of Digital Globalsoft (both calls and puts) is reverting to normal. The IV has decreased over the week. The spot has declined by Rs 38.4 to close at Rs 438.9.

If you have any queries relating to the futures/options please mail them to Futures & Options, Kasturi & sons, 859-860, Anna Salai, Chennai 600 002 or email them to

fno@thehindu.co.in

with a mention of futures/options in the subject line of the mail.

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