| November settlement will come into play with either a mixed trend or a bearish outlook.
|
| |
| Without the recovery on Friday, traders would have gone into settlement week in a mood of unrelieved depression. As it is, the doom and gloom has lifted somewhat. The spot Nifty is at 2443 while the October futures contract is at 2445.
|
| |
The market put-call ratio is at 0.86 - almost the same as in the week before, while the Nifty PCR is at 0.91. Open interest expanded sharply last week in both futures and options segment.
|
NIFTY KEY STATISTICS |
|
Last
week |
Previous
week |
Abs.
chg |
|
1-m prem/(disc) |
1.75 |
2.10 |
-0.35 |
|
2-m prem/(disc) |
-2.85 |
-6.65 |
3.80 |
|
3-m prem/(disc) |
-7.95 |
-6.40 |
-1.55 |
|
Futures OI * |
1373.58 |
1055.19 |
^ 30.17 |
|
Options OI * |
996.42 |
650.11 |
^ 53.27 |
|
PCR |
0.91 |
0.91 |
0.00 |
|
PVI |
1.40 |
1.22 |
0.18 |
|
* in lakhs |
|
| |
Index strategies
The market is in an intermediate downtrend. However the short-term recovery on Friday could certainly continue and push values up by another 40-odd points till around Nifty 2485 where there is a huge resistance.
|
| |
| It's possible that the market (or at any rate, that group of stocks which counts in the F&O segment) will stay range-bound or mildly bullish until settlement. However, it would be prudent to assume that the November settlement will come into play with either a mixed trend or a bearish outlook.
|
| |
| In terms of PCR, PVI, etc, the market isn't oversold; the values are in the neutral zone in the light of recent history. The expansion in OI is very interesting, given there's just four sessions till settlement.
|
| |
| It's especially interesting when we note that the PCR hasn't risen in tandem with the OI. To my mind, this means long calls have been created in the past 3-4 sessions - and that implies there is a body of traders gambling on, or hedging against a price rise, within the settlement.
|
| |
| In the futures market, the October contract (2445) is at a small premium to spot (2443), but November is at a small discount (2441). A calendar bear-spread is obvious - if we sell October and buy November, we should pick up a tiny differential of about 5 on Thursday when the October contract is extinguished.
|
| |
| This differential is however, too small to trade for gain even though it seems safe. It will only produce a worthwhile gain if the market spurts on Wednesday or Thursday and the November contract ends up trading at a respectable premium.
|
| |
| In the interest of completeness, we'll give all the standard spreads with prices. But the usual caveats exist against trading in the last week of settlement. Premiums on out of money options drop drastically because of settlement considerations and it's quite possible to end up being unable to settle a position – hence the entire premium is lost.
|
| |
| It's also dangerous to attempt to generate income by selling out of money options because the market is swinging through a wide daily range. Be aware that premiums could change rapidly.
|
| |
| A long 2450c (15.15) versus short 2480c (10) costs around 5 and it could pay a maximum of around 15. This is a decent risk:reward ratio for a bull-spread that is quite likely to be hit. A bear-spread created with a long 2430p (55) versus short 2400p (40) costs 15 and pays a maximum of 15. Not an attractive ratio quite apart from the major price differential between puts and calls.
|
| |
| Despite the "neutral", PCRs, the high put pricing makes one realise clearly where market expectations are headed. The skewed pricing also makes straddles and strangles difficult to calculate.
|
| |
| Essentially, there isn't much percentage in trying to profit from a drop in the index – everybody expects that. If the market drops, the profits from the average spread will be nominal. If the market does rise, the profits from a bull-spread could be excellent. We could also try reversed bull-spreads with a combination like a short 2430p (55) versus long 2400p (40). This has a 1:1 risk-return ratio.
| STOCK FUTURES/OPTIONS
Most stocks look set to move with the market and it's difficult to suggest too many positions, which have a potential to come through inside the next four sessions. Certainly one would tend to avoid the options segment totally. There are always liquidity and pricing anomalies this close to settlement.
|
Stocks with highest change in Options OI |
|
Cos |
% change |
PCR |
|
Kochi Refineries |
350.00 |
3.00 |
|
Cipla |
244.44 |
0.22 |
|
SRF Ltd. |
135.14 |
0.12 |
|
Dr. Reddy's |
87.50 |
0.38 |
|
SBI |
76.65 |
0.61 |
|
Mahindra & Mahindra |
75.54 |
0.02 |
|
Arvind Mills |
72.64 |
0.16 |
|
Satyam |
70.51 |
0.59 |
If we're looking at the futures segment, here are some possibilities. Several stocks have a potential for around 5-10 per cent upside from current levels and this could happen within settlement if there's a one session surge.
|
Stocks with highest change in Futures OI |
|
Cos |
% chng |
1-m futures price |
|
Dabur |
55.24 |
174.70 |
|
Cipla |
46.22 |
371.10 |
|
SCI |
45.76 |
156.15 |
|
J&K Bank |
45.45 |
452.85 |
|
Tata Motors |
44.03 |
514.70 |
|
Maha. Seamless |
42.42 |
427.60 |
|
Reliance Ind. |
39.65 |
773.10 |
|
Chennai Petro |
36.15 |
243.90 |
This list includes Arvind, Bhel, Gujarat Ambuja Cement, Hero Honda, Satyam, and Tata Power. Another possible play lies in the erstwhile Reliance group stocks. The big four of RIL, REL, IPCL and Reliance Caps are bullish as a group. These are all worth playing as long futures positions.
|
Stocks with highest change in prem/(disc)* |
|
Cos |
Last week |
Previous week |
|
IOB |
0.50 |
-1.20 |
|
Essar Oil |
0.15 |
-0.30 |
|
UTI Bank |
0.75 |
-1.90 |
|
Wipro |
1.60 |
-2.35 |
|
HDFC Bank |
3.50 |
-2.70 |
|
HDFC |
4.40 |
-3.85 |
|
Glaxo SmithKline Pharma |
-3.00 |
-9.85 |
|
BHEL |
5.95 |
-1.80 |
|
TVS Motors |
0.40 |
-0.15 |
If I had to make a choice, my favoured long positions would be in Hero Honda, Satyam, Reliance Energy and Tata Power. On technical grounds, these look to be the most likely to produce worthwhile upsides before Thursday. On the short side, Nicholas and Ranbaxy would be two favourites – both stocks look capable of a further downside of 3-5 percent. | |
| |
Content Guide
