Sunday, August 28, 2011

Derivatives: Momentum Selling May Continue, While The Market Appears Oversold



Bearish positions continues to be build, but market to take cues from global market trend while RBI's move to tame inflation will have to be closely watched

S&P nifty & nifty future and Futures & Option segment volumes

Source: NSE
Following some pull back during the initial part of the week for the nifty due to short covering, the market tumbled during the end three days as the fresh shorts were created during the expiry day. On Friday however it was all round selling both in the cash as well as the futures & option (F&O) segment. The nifty September future series added significant short position while some of the stock futures shed long positions on Friday.
Worries about introduction of QE3 in US and the domestic inflation and economic slow down concern weighed heavily on the domestic bourses as the Foreign Institutional Investors continued to dump Indian Equities. Interest rate sensitive sectors like Bank, Auto, Construction & Real Estate, Metals and capital goods segment saw sharp sell off. Perhaps the fears of sharp earnings downgrade for the front line players by major institutions caused the major sell off. Overall for the week the nifty fell 97.85 points to close at 4747.80.On Friday itself the nifty corrected 91.80 points. The nifty September future series on Friday added 26.21 lakh shares to take its total OI to 2.42 crore shares. The nifty September future on the other hand closed at a marginal premium of 0.9 points at 4748.70 on Friday.
In the futures and option (F&O) segment it was absolutely bear signals as fresh shorts were created in the index futures, while some of the long positions in the stock future segment were aggressively covered. Out-of-the-money strike call options witnessed aggressive writing, while out-of-the-money put strikes witnessed aggressive buying indicating the bearish mood. On Friday the nifty September future added 26.21 lakh shares in OI, to take the total OI to 2.42 crore shares.
The average volume in the F&O segment during the week was higher at Rs 168037 crore as compared to Rs 149006 crore during the previous week. Although the fundamentals still appears weak for the market in the medium term, there could be some pull back due to short covering as the market appears significantly oversold.
F&O segment-wise volume analysis
Source: NSE
The index put-call ratio on Friday increased sharply to 1.25 as compared to 1.05 the previous day, while the stock put-call ratio fell marginally to 0.54 as compared to 0.55 the previous day. The overall put-call ratio on Friday increased sharply to 1.21 as compared to 1.03 the previous day.
Open Interest (OI) break-up as on 26th August 2011
Open Interest (OI)* Change**Change#
Market wide 202.898.55-70.16
Index Future2.770.29-0.29
Stock Future173.50-0.33-31.40
Index Options12.001.96-5.51
Stock options14.626.62-32.96
* No of shares in crore
** Change is vis-à-vis previous day
# Change is vis-à-vis previous week
Source: NSE
The market-wide OI on Friday stood at 202.89 crore shares, 8.55 crore shares higher than the previous day. The index futures and Stock option segment added significant OI during the week. (See the OI break-up table)
Most active Nifty options (September 2011 series)

Most active Nifty options (September 2011 series)
OI
Call
Nifty 4600918050
Nifty 47001340650
Nifty 48002529900
Nifty 50005346600
Put
Nifty 44003071250
Nifty 45004139650
Nifty 46005199000
Nifty 47005119750
Source: NSE
The nifty 5000 and below strike call option of the September series added significant OI due to aggressive writing, while most of the out-of-the-money put strikes witnessed aggressive buying. The 5000-strike call option added 14.26 lakh shares in OI due to writing, to take its total OI to 53.47 lakh shares.
The 4600, 4700 and 4800 strike call option added 7.94 lakh shares, 6.24 lakh shares and 9.12 lakh shares in OI, to take their respective total OI to 9.18 lakh shares, 13.41 lakh shares and 25.30 lakh shares respectively indicating bearish positions. The 4400, 4500 and 4600 strike put option added OI of 14.12 lakh shares, 13.64 lakh shares and 10.30 lakh shares in OI due to buying. The total OI of these three strikes increased to 30.71 lakh shares, 41.40 lakh shares and 51.99 lakh shares respectively. (See the most active nifty option table)
Open Interest (OI) of major September 2011 series stock futures as on 26th August 2011
Open Interest (OI)* Change**Change#
Reliance 1.630.021.35
Tata Motors0.70-0.020.52
RCOM2.39-0.071.60
SBIN0.490.010.40
Tata Steel1.530.021.08
* No of shares in crore
** Change is vis-à-vis previous day
# Change is vis-à-vis previous week
Source: NSE
Top 10 Open Interest (OI) gainers in September 2011 series stock futures on 26th August 2011
Scrip Name OI*Change*% Change
COALINDIA320200080700034
INDIANB79000011900018
OPTOCIRCUI89600012100016
ABAN205100024400014
ORIENTBANK6470007600013
UNIONBANK193600020300012
JUBLFOOD3475003325011
BHUSANSTL5775005300010
BANKINDIA286500025650010
GMDCLTD4340003800010
* No of shares
Source: NSE
Top 10 Open Interest (OI) losers in September 2011 series stock futures on 26th August 2011
Scrip NameOI* Change*% Change
CHAMBLFERT3152000-888000-22
ESCORTS3994000-626000-14
RELCAPITAL3757000-574500-13
HINDPETRO3687000-518000-12
GSPL3892000-368000-9
BPCL921000-85500-8
BOMDYEING429000-35000-8
DHANBANK1072000-82000-7
BHARTIARTL8614000-622000-7
IDEA10976000-688000-6
* No of shares
Source: NSE
The momentum selling appears to continue for some more time, while there could be sharp pull back due to short covering as the market appears significantly oversold. The global market trend will remain the cue, while domestically the RBI's move to tame inflation will have to be closely watched. 
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