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K.S. Badri Narayanan

TRADING volumes picked up ahead of the settlement week for September contracts in the derivative segment on the NSE.

However, one has to wait and see whether the pick up in the activity will sustain or not, as securities transaction tax (STT) will take effect from October 1.

The roll-over of open positions from September to October contracts was just moderate, indicating that traders were slightly hesitant to carry over positions.

Nifty outlook: The benchmark Nifty may witness a range-bound movement with a slight negative bias as sentiment indicators put/call ratio and implied volatility presented divergent signals. With the September series due to expire this week and with the introduction of STT, traders have to use correct stop-loss tools in a disciplined manner, as the market tends to be volatile during settlement period.

Volatility view: The implied volatility (IV) of the puts and calls improved to 20 per cent from 18 per cent (last week) and 16 per cent (14 per cent) respectively.

Though the puts IV is slightly higher than that of calls, only a drop in implied volatility of calls and a rise in puts' IV would confirm the weakness of the market.

With the IV levels hovering around 16-20 per cent, the Nifty move in a narrow range.

Put/call ratio: The put/call ratio on volume basis declined to 0.71 (0.81) and on open positions-wise to 1.37 (1.45).

It indicates that traders have squared up their puts positions when the market fell on Thursday and Friday and maintained their call positions open.

Though the PC ratio declined marginally from all-time high levels of 1.5 to 1.37, it is still quite high, indicating a negative bias.

However, the higher PCR may also lead to short-covering that will push up the index.

Basis: Despite just four days left for expiry, the basis between the Nifty September futures and the spot Nifty index narrowed considerably. The Nifty October futures quotes at a discount of 7.35 points to the Spot close.

Cost of carry: The cost of carry for October futures remains marginally negative, indicating a slight downward bias for the Nifty.

Index movement: The Nifty spot index moved in the range of 1717.20-1760.80 before ending the week at 1722.5, a drop of 0.64 per cent over the previous week close.

Nifty futures: The derivative segment witnesses higher trading volumes ahead of settlement week; the average daily trading volumes last week was Rs 9,671 crore against the previous week figure of Rs 7,650 crore.

The turnover touched the Rs 10,000-crore mark on September 22 after nearly a month; the previous occasion was on August 26, which was the last day of contracts expiring in that month.

The September Nifty futures closed at 1721,15, a discount of 1.35 points to the spot close of 1722.5.

Open positions slipped to 43,327 contracts from last week positions of 58,309 contracts. However, the positions were rolled over to Nifty October contracts, which closed the week at 1715, in backwardation by 7.35 points to the spot. Open positions improved to 17,421 contracts against last week positions of 2,254 contracts.

Stock futures: The most active contracts were Tata Motors, Tata Steel, Reliance, Infosys, Satyam Computer, ACC, Maruti, SBI and TCS.

The rollover of open positions to the October series was seen in Shipping Corporation, HLL, Tata Steel, ACC, Infosys, Maruti, ONGC and Reliance Industries. However, roll-over of positions was low in key stocks such as Satyam, SBI, IOC and BPCL.

Contrary to the trend in the Nifty futures, most contracts witnessed a fall in implied volatility for puts and a rise in IV for calls.

The rise in the calls IV was, however, sharper than that of puts in most cases.

Interestingly, in active contracts, calls IV was higher than that of puts.

On put/call ratio front, the active contracts followed the trends in the Nifty.

PCR for both volume wise and open positions wise slipped marginally.

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