Nifty October series rollover rebounds from 4-month low

Written by Devangi Gandhi | Mumbai | Updated: Oct 26 2011, 11:11am hrs
The Nifty October rollover saw a huge rebound from a four-month low rollover of September (near 61%). October rollover at 80.2% was the strongest for the year as well as the most bullish in the recent past, believe derivative experts. Further, the Niftys close above the 5,170 mark which it failed to breach in many instances in the past, adds to the bullish sentiment they believe.

This healthy rollovers were accompanied by a huge jump in the premium of 47 points with which the November futures closed above the Nifty towards the end of the session. This indicates that a huge number of long positions were rolled over at a very high rollover cost, giving a thrust to the November futures.

The rollover in index heavyweights and index futures appeared healthy even one day prior to the expiry. However, banking stocks and few metal stocks have maintained a short rollover for one more series, says Amit Gupta, derivatives head as ICICI Direct.

While for most of the index stocks healthy buy rollovers took place, HDFC Bank, Reliance Power and Maruti Suzuki were amongst the few index heavyweights which saw short rollovers. Cairn India, Kotak Mahindra Bank and Hindalco were some of the heavy weights which saw strong rollovers above 90%.

According to Savio Shetty, derivatives strategist at Prabhudas Lilladher, the jump in the cost of rollover or the premium of November futures over the Nifty, towards the end of the trading session indicates extremely bullish sentiments.

The cost of rollover at point went to as high as R55 before settling at R47. Such high cost of carry has not been witnessed in the recent past. Even during the market peak of 2008, the highest cost of carry observed was somewhere around R35, on a lower base, he added.

In the previous three sessions to expiry , the Nifty roll-over cost was ranging between R16-20. As the market showed a one-sided gain above 5,150 mark, traders were forced to rollover their long position at higher cost as they missed out on taking advantage of a lower cost of carry in the previous three sessions, said another analyst.

Experts are expecting the market to maintain a bullish stance if the Nifty manages to break and hold above the 5,200 mark. The Niftys movement in the last two and half months in a tight range of 5,170 to 4,700 was a consolidation followed by a breakout on the higher side, added Gupta.

Such breakouts generally are followed by an equal sized move in the direction of the breakout. However, a more confident sign would come when the Nifty manages to close above the 5,200 mark. In such a scenario, the ideal strategy that traders opt for is buying calls of the 5,200 strike,which could help them take advantage of any swift up move from here, added Shetty.

The November series has started with a heavy buildup in the calls of strikes of 5,200-5,400. On the put side, strikes between 4,900 to 5,100 are experiencing open interest buildup.