This week was eventful for the F&O segment. The turnover surpassed Rs 10,000 crore level for the first time on Monday amidst the bomb scare. During the week, the average daily turnover was seen at unprecedented levels of around Rs 9,000 crore. The August contracts expired on Thursday and around 50 per cent of the positions were rolled over. The futures and options tally increased with the addition of CNX IT index and eight banks in the derivative segment from Friday.
The Index futures segment witnessed more than one lakh Nifty futures contracts being traded on Monday, following the jitters post bomb blast. Otherwise the volumes remained high amidst expiry of the August contracts. The open interest continued to build up in September contracts during the week.
The cost of carry for September contracts kept moving in and out of the negative territory and at the close of market hours on Friday, it was prevailing at 2.24 per cent level (annualised). This seemed to be a cause of concern as Nifty futures have largely been at discount to index value for most part of the bull-run. However, the overall bullish sentiments are still evident in the market and it is expected to remain firm.
This segment witnessed trading interest largely shifting to 1340 - 1360 level for Nifty calls and 1300, 1340 and 1350 level for Nifty puts. It seemed that some of the investors had taken positions at 1300 level in Nifty puts to hedge themselves against any sharp fall in the index.
The implied volatility fluctuated very sharply as the market mood swung from one direction to another. The put-call ratio also moved substantially as investors resorted to call writing on Monday after sudden fall and retracted back the next day. These trends are hinting at the firm outlook for the market in general.
Options On Individual Shares
This segment witnessed a total of 1,53,890 contracts traded during the week with IT counters getting back into action following run up in their share prices in the cash market. The implied volatility increased for both calls and puts for a number of counters in the September expiry contracts.
The put-call ratio has been quite low for BPCL, MTNL, SBI, L&T and Tata Power and investors should keep a watch on these shares to reap benefits from the uptrend. The coming week would witness the building up of positions on the first few days.
Futures On Individual Shares
The volumes increased across the board as compared to last week with ACC, HLL, ICICI Bank and Maruti being the few exceptions. The open interest rose in September expiry contracts for MTNL, Tisco and a few IT counters on Friday. More counters would experience an increase in outstanding positions next week.
The cost of carry was in the high positive territory for most of the counters on Friday. Investors may arbitrage by buying in cash market and selling in futures market on counters like ACC, Tata Power, ICICI Bank and MTNL and earn some risk-free gains. HPCL and Infosys should be watched carefully as they are prevailing at a discount to the cash market price. Overall this segment is hinting at continuing buying spree.
Outlook For Future
The foreign fund inflows have been quite intact and FIIs have so far invested more than $450 million during August. Even their participation in the F&O segment has registered a sudden jump on Thursday. Mutual funds have also poured in more than Rs 400 crore in equities during the same period. Keeping these trends in mind, it seems that there is some steam still left in the rally. Investors should look at the banking and IT counters for buying.
Pharmaceutical counters may come under selling pressure following the failure in consensus building at WTO regarding cheaper drugs for poor nations. Investors should form long straddle position, buy calls and puts at same strike price, on Nifty at current level. It would benefit them in case market rises or falls sharply in any direction. Overall market seems to be poised for some more gains as momentum has been continuing week after week.
(The writer is faculty member at the Lal Bahadur Shastri Institute of Management, Delhi and can be contacted at email@example.com)