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C. Raja Rajeshwari

RIDING on a strong undertone in the indices and most of the underlying securities, there was a substantial roll-over of positions on the January contracts. The Nifty gained 3 per cent week-on-week. The weakness in the Nifty midweek (it dipped by 8.9 points on Tuesday) proved short lived, as buying interest and short covering carried the Nifty to all-time high of 1837.05 points.

Substantial rollover of positions was evident in the Nifty futures, and in contracts of Tata Steel, Tata Motors, MTNL and most banking, oil and cement stocks. Contracts on tech stocks had a comparatively lower level of rollover. The rise in the open interest and the underlying prices point to a bullish outlook. Until either of these changes direction, the bullish outlook for that particular security would not be negated. For instance, if open interest declines followed by price decline, it indicates that positions are being closed out. This would mean either a cautious or a bearish outlook for that stock.

Outlook Pointers: Even there are indications for a continued bullish trend; factors such as put-call open interest ratio and implied volatility soften the positive sentiment.

# The put-call open interest ratio of 0.6 for the Nifty is at a level, which is considered bearish. But as has been seen many times in the past, the Nifty has held firm till the put-call open interest ratio has touched levels higher than one. Moreover, the volumes in the January options would pick up substantially only in the coming week. Hence, too much significance need not be placed now on this indicator at these levels.

# The Nifty put's implied volatility (IV) has been increased from 23 per cent to 25 per cent over the week. The increase in the IV can be construed as the high premium charged by the put writers for the risk undertaken. In contrast, the Nifty call IV has also risen over the week to 18 per cent (12-14 per cent in the previous week).

# Between the expiry of contracts last week and in the preceding month, the index has not witnessed a corrective phase. Hence, weakness in the Nifty cannot be ruled out though it may not be imminent.

Contracts on Nifty: More than 40 per cent of previous months' positions on the Nifty have been rolled over. The Nifty January futures, which were trading at a discount to spot, closed the week with a marginal premium to spot. This, however, cannot be construed as a pointing to strong undertone as the futures market still plays a limited role in influencing spot prices.

In index options, Nifty calls attracted a higher level of trading interest compared with the levels in the past. The put-call volumes ratio was at 0.5, which is lower than that of the previous week. Nevertheless, such activity after the expiry of the contract can be viewed as a pointer for caution. The January 1800 (in-the-money) was the most active call, and among the index puts, the January 1800 and 1780 (out-of-the-money) puts were actively traded.

Cement stocks: There was heightened trading interest in the contracts on ACC, Gujarat Ambuja, Grasim and L&T towards the end of the week in line with buoyancy in the spot market. There was a four-fold increase in the open position of ACC's January futures during the week.

Banking & oil stocks: The contracts on most banking and oil stocks sizzled the week as dividend plays. A major build-up in open positions in the January futures on Canara Bank, Bank of India, SBI, Gail, Union Bank, Syndicate Bank, HPCL and IOC was a trading highlight.

PNB: The January futures on Punjab National Bank, however, bucked the trend prevailing among the banking stocks. The open interest in the January futures declined by 15 per cent on Friday. The futures price was on an uptrend. This increase in the price (spot and futures) combined with a decline in the open interest indicates that short positions were being closed out. This indicates a strong bullish outlook for the stock, as short positions would have been closed out only in anticipation of an increase in the stock price.

Ranbaxy: The open interest in the January futures of Ranbaxy declined by 3 per cent on Friday. After weakness mid-week in the underlying, the futures price has been on an uptrend. This increase in the price combined with a decline in the open interest indicates that short positions are being closed out with positive implications for the week ahead.

Others: Among stock futures, a substantial build up in open position was witnessed in the futures of Tata Steel and MTNL followed by ACC.

If you have any queries relating to the futures/options markets ' 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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