Though the domestic equity indices have scaled a new high and are in a buoyant mood, positions in the derivative segment are signaling a note of caution. First, the implied volatility (IV) of Nifty options (investor?s expectation of future volatility) is still at a high of around 35% indicating high amount of nervousness in the market. Secondly, the outstanding open interest in individual stock futures, when compared to the market wide-open interest has reached a high of 70%. Normally, it is in the range of 55-60%. Therefore, high open interest points towards highly leveraged positions in the market. The same level of open interest was prevalent in stock futures during May 2006, dealers said.
Vivek Jain, derivative analyst, Edelweiss Securities, says, ?There were short covering in the market while at the same time fresh accumulation of open interest in Nifty and individual stock futures were witnessed that too on the long side. But lower percentage of delivery positions in the cash segment clearly shows that the most of the positions are speculative in nature.
