The Hindu Business Line : Using Futures/Options

The National Stock Exchange (NSE) does not put out statistics on put-call ratio. You would have to get that from some of the other Web sites such as indiainfoline.com that track the market.

Or, you can read Business Line on Sundays to get the relevant information.

It is possible that most publications - online and offline - may not provide PCR statistics on all options. What you can however do is to calculate it yourself.

You can get data on traded volumes or open interest in puts and calls for a particular option from NSE's Web site or from Business Line.

Then aggregate the data on puts and calls, divide puts by calls and you will have the PCR statistic.

How can I use the options calculator?

Options calculator usually will need either volatility or option premium as the primary input.

This apart, you have to give data regarding the strike price, spot price, number of days to expiry, the interest rate and the dividend yield on the underlying stock.

The data on strike price, spot price and the number of days to expiry will be available with you.

Dividend yield is the latest dividend per share divided by the ruling market price.

On the NSE's Web site, when you get the quote for a particular contract, the page on each particular option has a link to the data on the underlying stock.

The data on the underlying stock would give you the dividend percentage.

Multiplying the dividend percentage with face value of the share would provide you the dividend per share.

You can assume interest rate at about 4.5 per cent.

The calculations are not sensitive to both dividend and interest rate. As such, approximations will be good enough.

Then, if you want to calculate the option price, you will need to have an estimate of volatility.

Similarly, if you want implied volatility, then you will need to have the option premium.

On the BSE's Web site, along with volatility or price as the output, the option calculator will also give you information on the option greeks.

The option greeks then tell you the risks that you are exposed to.

I would like to know the following: — M. Vijay

Does rollover of positions give any cue regarding the bullishness of stocks in question? And the impact on calls with minimum time decay as October expiry is far away?

Rollover of futures contracts does not indicate bullishness or bearishness.

If positions are rolled over and prices rise, then it may be a sign of bullishness.

If positions are rolled over and prices fall, then it may be a sign of bearishness.

In the case of far-month, out of the money or at the money calls with minimum time decay, a change in sentiment to bullishness is positive for option premium.

Do rise in calls implied volatility and higher calls IV than puts indicate a bullish trend?

Implied volatility is a measure of the pricing environment. An increase in the IV of calls indicates that calls are now more expensive than they were earlier.

If IV of calls is higher than that of puts or if IV of calls rise while that of puts fall, then it could be interpreted as a sign of bullishness.

If open interest and trading volumes also increase significantly, then it is a stronger indicator of bullishness.

What does the reduced PCR n volumes and OI indicate?

The reduction in PCR in volumes must be read along with the traded volumes.

If traded volumes did not decline and still PCR declined then it would be significant.

Second, if PCR was at a high level and it declines from those levels, it may be a bullish sign.

If PCR was already low and it declined from those levels then it does not provide any reliable signal.

What level of PCR is high or low needs to be determined from historical statistics. It may vary from option to option. Usually, a PCR level of 0.7 or more is considered high.

The changes in open interest need to be interpreted along with change in traded volumes and change in price.

If open interest declines when traded volumes rise and price declines then it may be a sign of bearishness.

Change in open interest statistics, however, is not highly reliable.

I have gained 20,000 from a call option and lost 10,000 from other call option. I want to know whether I have to pay tax for 20,000 or (20,000-10,000 = 10,000). — Abdullah

You will have to pay tax on Rs 10,000 only. The loss on derivatives transaction can be set-off only against profit from derivatives transactions or any other income considered speculative by the tax laws.

Queries relating to futures/options may be sent to

fno@thehindu.co.in

or to Futures & Options, Kasturi & Sons, 859-860, Anna Salai, Chennai 600 002.