The high cost of long rollovers is acting as a deterrent to those who want to sell November Nifty futures and buy December Nifty futures, ahead of the expiry next week.
Industry observers said investors are adopting a wait-and-watch approach as they expect the cost of long rollovers (those taken with a bullish call on market) to come down significantly on the penultimate and final day of expiry.
On Friday, the cost of long rollovers reduced from about 50 bps to 45 bps.
?The cost is still inhibitive for long rollers, so they are not aggressive in the market currently. They are willing to wait a few more days to roll over their positions,? said Vishal Jain, senior analyst, equity derivatives at ICICI Securities. He said short rollers ? those supposed to sell November and December futures ? could have made a tidy profit till Friday afternoon. Now, they will be in a disadvantageous position in the week ahead due to the shrinkage in costs.
Interestingly, the premium of both the November and December futures series has reduced. While the November futures? premium reduced to zero on Friday, the December premium was quoting at 25 points. The December premium was as high as 50 points till Thursday. ?This has happened due to the intense selling pressure seen in both the series in the last half an hour of today (Friday),? said Jain.
Also, several FIIs have been unwinding their positions and shorting index and stock futures, especially banking stocks. Open interest has been squared off in the last three days, which indicates positions are being unwound rather than rolled forward.
?They have been rolling over their positions continuously over the last six months when the Nifty was around 4,800. They are now reducing their exposure,? said Jain, adding that the selling is still not aggressive enough for it to lead to a substantial correction in the market.
Market participants are seeing little upside to the market ahead of the expiry week.
The market is expected to remain somewhere between 5,600-5,700 and 6,050 over the short term.
One of the strategies that analysts are advocating in this market is covered puts. In a covered put strategy, one sells the underlying stock and sells a put option against it. This strategy works best in a bearish to neutral market where a slow fall in the market price of the underlying stock is anticipated. Profitability depends on the short options expiring worthless.