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June series rollovers send a bullish signal

About 76% positions have been rolled over at higher premium; most build-ups at 9600

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The markets that are breaching new highs are likely to continue their ascent, if high market-wide rollovers at the end of May series are any indication.

About 76% positions were rolled over into the June series, in line with the average rollovers of 75% for the last three series. June series will start with a market-wide future open interest (OI) of Rs 1.16 lakh crore as against Rs 1.2 lakh crore seen at the start of the May expiry.

The Nifty continued its winning streak by posting a positive expiry for sixth consecutive month. Nifty futures rollover stood at 74%, higher than the average rollovers of 69% for the last three series and Nifty will start the June series with an OI of Rs 19,100 crore (around 20 million shares) compared to an OI of Rs 19,500 crore (around 20.88 million shares) at the start of May series.

“Rollovers have ended on a very strong note. High rolled percentages coupled with aggression from long rollers corroborate the fact that the undertone remains positive,” said Yogesh Radke, head of quantitative research at Edelweiss Securities, in a note.

FMCG, banks, auto and IT and were the outperforming sectors whereas underperformance was led by pharma, metals and energy.

Moreover, the Nifty index made a strong bullish candle on Thursday by negating its formation of lower highs of last three trading sessions.

“It has almost engulfed the price consolidation of last five trading sessions and closed strongly above 9500 mark. Now it has to hold above 9450 zone to witness an up move towards 9550 and 9600 zone while on the downside supports are seen at 9420 and 9380,” said Chandan Taparia, associate vice-president and derivatives analyst at Motilal Oswal Securities in a note.

Also, India volatility index (VIX) fell 11.69% at 10.44.

“Lower volatility is supporting the overall bullish undertone of the market. Now till VIX remains below 12.50 zone trend may remain intact to positive for a fresh up move,” said Taparia.

Breaking away from the trend seen in last few expiries, stock futures roll cost (cost to long rollers) were elevated this time. After starting the week at around 50-52 bps, levels moved up to around 62 bps. Nifty futures roll levels (cost to long) was around 50 bps during the day (six points on screen and 41 points dividend expected in June).

High rollover costs indicate participants are willing to pay a premium for their positions.

On the outlook for June series, Jay Purohit, technical and derivatives analyst at Angel Broking, said in a note, “In June series, 9800 call option added huge positions; followed by decent build-up in 9500-9700 strikes. On the other hand, in put options, 9300-9500 is attracting traders. At the current juncture, highest open interest in June series is at 9600 call and 9300 put options.”

Purohit is also quite positive on the outlook for the markets. “Considering overall rollover activity, we continue to maintain our bullish stance on the market and thus, advice traders to trade with a positive bias for an upside target of 9650–9700 level,” he said in the note.

However, there is a note of caution.

“The overall feel in the market is that there is a plenty of optimism, there is also a lot of expectation, plenty of liquidity, and therefore, at every dip, there is a new set of buyers who want to buy because things are cheap. So, this rally will continue for some more time. The rally will go into a correction only when those who want to buy will buy after a fall; if it falls more, they buy more, and it yet falls. So, possibly at that time, the buyers will get a little worried,” Arun Kejriwal, founder, Kejriwal Research & Investment Services, told DNA Money.

“Normally, this kind of a sharp rally on the last day of the expiry does not sustain. I am not saying that there will be a correction from Friday but tomorrow (Friday) could be quieter,” Kejriwal said.

...& ANALYSIS

  • In June series, 9800 call option added huge positions; followed by decent build-up in 9500-9700 strikes
     
  • In put options, 9300-9500 is attracting traders, says Jay Purohit, analyst at Angel Broking
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