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C. Raja Rajeshwari

The put-call open interest ratio and the put-call volumes ratio on the Nifty options also point to weakness in the Nifty. Both the ratios have increased over the week.

THE Nifty managed to stage an uptrend gaining more than 3 per cent above the previous week's close, despite the weak undertone prevailing. The sentiment indicators still point towards a weakness, which has to set in full force.

Sentiment indicators: The intraday volatility has increased in Nifty, with more than 10 points difference between the intraday low and the day's close. The December Nifty futures are quoting at a discount to the spot. The quantum of discount was in the range of 5-2 points to the spot. Though the other two series - January and February — contracts traded in a marginal premium to spot, the cost-of-carry languished in the negative territory.

The put-call open interest ratio and the put-call volumes ratio on the Nifty options also point to weakness in the Nifty. Both the ratios have increased over the week. The volumes of Nifty puts are greater than that of the call options; for every 10 calls traded, there were 11 puts. The put-call open interest ratio has also increased from 0.90 level to 1.25. Both these numbers point to a bearish view amongst market players. The Nifty put-call open interest ratio has in the past touched a high of about 1.2, after which the Nifty has weakened considerably.

Volatility check: Normally, the Nifty's implied volatility (IV) tends to decline when the index continues uptrend or a downtrend. But last week, despite the uptrend in the Nifty in the previous week, the IV has not declined due to the increase in the intraday volatility in the index. The implied volatility of puts has remained about 23-25 per cent for the week. The firm IV over the past two weeks indicates that put writers are charging a higher level of premiums for the risk undertaken. This too indicates a bearish sentiment.

Index contracts: The open interest on the Nifty futures reduced marginally on Friday. An increase in underlying price with a decline in open interest can be interpreted either as profitable position being closed out or positions being rolled over to the January contracts. This again signals a bearish outlook for the index.

Arvind Mills: The open position in the December futures were closed out at the start of the previous week as the open positions had crossed more than 80 per cent. However, new positions have been initiated despite the increased margins. This could have an adverse bearing on the stock for the week ahead, as positions would either be closed out or rolled over to January contracts to reduce margins. The IV of both the calls and the puts have fallen drastically to 50 per cent, indicating that the calls are relatively cheaper.

Tata Motors: The open interest in the December futures of Tata Motors has risen by 4 per cent. There was also heightened activity in the January futures. The open interest in the December contracts are more than 70 per cent. Going forward, additional margins would be levied, if new positions were initiated.

The IV of both the calls and the puts have been showing steady decline over the past two weeks to levels of 34-39 per cent. In light of this decline, long positions in out-of-the-money January options can be considered to take advantage of the cheap option valuations in terms of IV.

There are eight trading days before the expiry of the December contracts. So for the forthcoming week, the trading action would pick up in the January contracts. As far as the January futures go, contracts on Gail India, Tata Steel, Grasim, Syndicate Bank and Reliance were much sought after ones.

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