• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

C. Raja Rajeshwari

THE nine-day rising trend in the Nifty has come to a grinding halt with the index declining below the 1650 level on the last trading day of the week. There was an all-round closing out of positions on Friday. However, positions were stepped up in futures on Tata Power, MTNL, Andhra Bank, Gujarat Ambuja, ICICI Bank and GAIL.

In these stocks, the increase in the open interest levels amidst a decline in the broad market points to a firm undertone.

Sentiment indicators: The put-call open interest ratio of 0.90 for the Nifty indicates that for every 10 calls, there are 9 puts in the market.

The put-volume ratio is at 0.96, which indicates that for every 10 calls traded, there are 9 puts traded.

Both these numbers are at levels that point to a bearish view amongst market players, and suggest the possibility of weakness in the index in the forthcoming week.

Volatility check: The implied volatility (IV) is higher for the Nifty puts as compared with the Nifty calls.

The increase in the volatility level on a day-to-day basis is also higher in puts than calls.

This enhanced IV in puts indicates that put writers are charging a higher level of premiums for the risk undertaken. This too indicates a bearish sentiment.

As far as option contracts on stocks go, there was an increase in the IV for both the call and put options of Tata Motors, Tata Power, BSES, Mahindra & Mahindra, Reliance and ACC.

Index contracts: The futures traded at a premium throughout the week. The December Nifty futures closed the week at a Rs 3.8 premium to spot Nifty.

The cost-of-carry, which had declined over the week, rose to 3 per cent on Friday.

The increase in the cost-of-carry indicates that investors are wary of buying the futures.

# The open interest on December futures declined by 5 per cent on Friday.

The decline in both the Nifty and the open interest in the December futures indicate that profitable long positions were closed out.

# However, on a week-on-week basis, the open interest was higher by 20 per cent owing to the new positions initiated through the week.

Tata Steel: The open interest in the Tata Steel contracts is more than 60 per cent of the permitted exposure limit.

With contracts at a high level in Tata Steel futures, the trading action has started to increase in the options of the underlying.

The implied volatility for Tata Steel shows a sharp spike; the overall call implied volatility has risen to 51 per cent from 43 per cent and the put IV to 43 per cent from 41 per cent. The put-call open interest at 0.24 indicates strength in the stock in the upcoming week.

Arvind Mills: The overall open position in the contracts of Arvind Mills is more than 80 per cent. Going forward, additional margins would be levied if new positions were initiated in the forthcoming week . This could have an adverse bearing on prices unless there is strong buying interest to absorb the higher level of margins. The open interest in the December futures have declined marginally on week-on-week basis.

The cost-of carry has also declined from high level of 74 per cent to 19 per cent, which indicates strength in the near-term.

The December 60 call (in-the-money) and December 65 call (out-of-the-money) were the most actively traded.

The volume of puts as compared with that of calls was low at 0.13, indicating that for every 10 calls, one put was traded.

The decline in the put-call open interest ratio also adds strength to the bullish sentiment in the stock.

Bank stocks: The IV for the calls and puts of Canara Bank, Punjab National Bank and Syndicate Bank has declined steadily over the week.

ICICI Bank: The open interest in the December futures of ICICI bank has risen by 29 per cent.

# The IV of both the calls and the puts of ICICI Bank have risen to highs of about 65 per cent.

In light of this increase, investors can consider short positions in the out-of-the-money options to take advantage of the rich premium.

# The most active calls were the December 270 (out-of-the-money) and the 280 call (out-of-the-money). The 250 puts (out-of-the-money) and 260 puts (at-the-money) were actively traded.

If you have any queries relating to the futures/options markets and strategies 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.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Construction: Building on

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line