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C. Raja Rajeshwari

The week witnessed subdued activity with an exception on Friday when trading activity picked up in the December contracts. The overall turnover crossed the 10,000-crore mark after a gap of 10 trading sessions. After the lull in the F&O segment owing to the margin calls, trading activity picked up with positions rolled over to the December futures contracts of Tata Steel, Tata Motors, Arvind Mills, MTNL, Tata Power, Reliance and ACC.

Sentiment indicators

There is no clear signal of market movements for the week ahead from the F&O sentiment indicators. The put-call open interest ratio is low for most underlyings, but this does not provide a comprehensible picture as the interest in the December options are yet to pick up.

The implied volatility (IV) levels, which declined over the week, have either increased or jumped up due to the uptrend in most of the underlyings. Trading is closed on Wednesday, with only two days for rolling forward /unwinding the near month contracts.

Volatility check

Arvind Mills, Reliance, ACC and Tata Motors calls had substantial increase in IV levels, as compared with week-on-week levels. This is due to the reason that trading interest in the options of these stocks are relatively higher.

Contracts on Nifty

The November Nifty contracts quote at a premium of Rs 6 to the spot. The open interest in the November futures declined 7 per cent on Friday whereas the open interest in the December contracts increased four-fold. The cost-of-carry of the December contracts is at 3.9 per cent, which indicates positive sentiment in the medium-term.

Unlike the equity options, the Nifty options had substantial trading activity. The put-call open interest ratio for Nifty option at 0.6 (for every 10 calls there was 6 puts) indicates the indecisiveness in the broad market. The most actively traded contract was November 1520 put (out-of-the-money). The put added 66 per cent more contracts on a week-on-week basis (557 contracts).

Stock futures: Closing out or rolling over of positions was rampant this week on most contracts. Maruti November futures had lot of trading interest. The open interest increased by 13 per cent on a week-on-week basis.

November futures on Digital GlobalSoft also had an increase in open interest (26 per cent). The increase in the open position and the increase in the underlying stock price (week-on-week basis) indicate that new positions have been initiated towards the end of the week.

Canara Bank: The December futures on Canara Bank had increased activity on Friday as compared with other banking underlyings. The high cost-of-carry at 10 per cent levels indicates weakness in the medium-term.

Tata Steel: Among the December futures, Tata Steel had the maximum rollover of positions followed by Tata Motors. The December futures had a ten-fold increase in open interest to 1205 contracts. Among options, the trading activity in the December contracts was concentrated in the 350 call (out-of-the-money) and 340 call (in-the-money)

Equity options: Arvind Mills and Bank of India had substantial rollover of positions. The 55-strike call of Arvind Mills (in-the-money) and 60-strike call of Bank of India (out-of-the-money) are actively traded. The IV of these two strikes would decline in the forthcoming week as liquidity picks up in the contracts.

The IV of calls on banking stocks such as Syndicate Bank and Bank of India have corrected to their average volatility levels.

FII stance: As compared with two weeks ago, when the Foreign Institutional Investors (FIIs) were net sellers, the previous week saw FIIs alternating between net buyers and net sellers. At the end of the week, the open position of the FIIs in index futures had increased while that of stock futures had declined marginally indicating that some positions are being closed out instead of being rolled over.

The open positions held by FIIs on stock futures have increased to more than 85,000 contracts as compared with 70,000 contracts, two months ago. However, out of the total open positions it still accounts for about 20 per cent.

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