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Market to gauge spurs before taking fresh positions

Trading is expected to be stock-specific as the broad market looks for direction.

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Trading is expected to be stock-specific as the broad market looks for direction

The first week of January is expected to see the market gauge the extent of foreign fund flows, enthusiasm for initial public offerings, expectations on third quarter results and trends in global markets before taking fresh positions in derivatives. The expiry week saw Nifty index futures carry forward leverage levels seen in mid-December, 2006, with the basis spread at a premium to spot. Single stock futures, however, saw leverage being cut from the high levels seen in mid-December, 2006.

Foreign institutional investors (FIIs) were net sellers in cash market and net buyers in single stock futures, indicating a cutting down of arbitrage positions. Nifty options saw good increase in open interest and higher implied volatility for puts, indicating players hedging their bets into January. Broad market volatility was lower last week, with the daily average volatility for the week as measured by the difference between daily highs and lows of the Nifty index at 1.21% against 2.53% seen in the week before last. Trading is expected to more stock-specific as the broad market searches for direction.

Top five traded single stock derivative contracts

The top five traded single stock derivative contracts for last week were Reliance, SBI, Tata Steel, Reliance Communication (RCOM) and Century Textiles. The list of top five traded single stock futures last week was unchanged from the week before last.

Reliance stock futures price was higher by 0.55% week-on-week, while open interest was lower by 15%. The counter saw around 73% of December contracts rolled into January. The stock futures price is expected to be ranged given lack of arbitrage opportunity and any market moving news.

SBI stock futures price gained around 3.2% week-on-week, while open interest was lower by 18%. The stock saw around 75% of December contracts rolled into January. The stock futures price is expected to see volatility given January is the monetary policy review month.

Tata Steel stock futures price gained around 1.7%, while open interest fell by 16% week-on-week. The stock futures has seen a sharp fall of 37% in leverage over a month as players cut positions on the uncertainty of the Corus bid. The stock futures price is expected to move on incoming news on the bid for Corus.

RCOM stock futures price gained 1.7% week-on-week, while open interest was lower by 25%. The stock futures price is expected to move on incoming news on bids for Hutch. Century Textiles stock futures gained 13%, while open interest was lower by around 18% week-on-week. The stock futures price is expected to see volatility, given the sharp rise in price last week.

Nifty index futures

Nifty index futures price gained close to 3% week-on-week while open interest was lower by 21%. The basis spread closed last week at a premium of 4 points to spot against a discount of 16 points seen in the week earlier to last, indicating covering of short positions. Nifty index futures price is expected to be choppy as the markets searches for direction.

Nifty index options

Nifty index options saw call option premiums gain between 28% and 38% across strikes, while put option premiums lost between 45% and 50% across strikes as the broad market gained 3% week-on-week. Implied volatility (IV) was lower for calls and higher for puts with call IVs closing last week at 21% from 23% levels while put IVs closed at 26% levels from 25% levels. Open interest was higher across contracts with put open interest showing large increase. The market is hedging its bets going into January.

FII activity

FIIs were net buyers in Nifty index futures for Rs 310 crore last week against net sales of Rs 435 crore in the week before last. FIIs were covering Nifty shorts in the expiry week. FIIs were net buyers in single stock futures for Rs 660 crore last week against being net buyers for Rs 246 crore in the week prior to last week indicating losing out of arbitrage positions.

Product-wise traded volumes

The daily average volumes in the derivative market was lower last week at Rs 34,558 crore against Rs 38,060 crore recorded in the week before last. Nifty index futures accounted for 28% of total daily average volumes against 41% seen in the week before last, while single stock futures accounted for 57% of total daily average volumes against 44% seen in the week before last. Single stock futures recorded higher volumes as the broad market volatility came down and this week is expected to see higher trading in single stock futures as the broad market searches for direction.

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