Derivatives: Fresh shorts seen building-up in the Nifty and Stock futures November series

Fresh shorts are seen built-up in the November series although the next week will see a clearer picture; we expect huge volatility as we enter the October expiry week.

Besides the extremely weak global indices throughout the previous week, the pending court hearing in the Reliance Industries and Reliance Natural Resources gas disputes dented the domestic market sentiment heavily thus reversing the unabated bullish run. Besides Reliance Industries, the bank stocks fell after Moody's Investors Services on Wednesday downgraded the supported ratings of 13 Indian commercial banks after its global review of systemic support indicators for individual banking systems. Although the market notched up some gain on Friday 23rd October 2009, overall for the week most of the benchmark indices fell. On Friday Reliance further corrected as partner in KG Basin- Hardy Oil said a D9 well will be plugged and abandoned.

The S&P CNX Nifty closed 8.45 points higher on Friday 23rd September 2009 compared to the previous trading day. It closed below the psychological 5,000 mark after moving above and below that level during the day. The Nifty future however closed above the 5000 mark at a premium of 10.85 points to the underlying. Although the Nifty October series shed OI by 18.91 lakh shares, the November series added 20.55 lakh shares in OI on Friday. The total OI in the October series stood at 2.01 crore shares, while that in November series was 61.53 lakh shares.

The average volume in the F&O segment during the current series was Rs 67,525.72 crore as the volumes remained at higher levels during the week gone-by. The average volume during the previous week was Rs 77,043.71 crore. On Monday it self there was aggressive put buying of 4900 to 5300 strikes with lower open interest (OI) thus indicating covering of the put wrote at these strikes earlier. The trend continued through-out the week. Simultaneously there was call writing at 5100 and 5200 strikes indicating bearish undertone.

The stock future segment also witnessed unwinding of OI in the current series while fresh positions were seen building up in the next series. For e.g. During the week under review the major stock underlying like Reliance, Tata Steel, Tata Motors and Unitech shed 3.98 lakh shares, 21.24 lakh shares, 36.38 lakh shares and 50.94 lakh shares in OI respectively. Other major underlying like ICICI Bank, SBI, Sail, Bharti and Maruti also shed OI in the current series. However fresh short position seems to be building-up in the November months Nifty as well as stock futures.

The market-wide open interest (OI) on Friday stood at 203.68 crore shares, thus gaining by 2.25 crore shares as compared to the previous trading day. The stock future contributed the major addition

On Friday there was fresh OI build-up in the Nifty 5000 and 5100 strike calls indicating calls being wrote at these levels. Besides fresh puts wrote earlier at strikes ranging from 4900 to 5300 were being covered. More importantly fresh aggressive call writing is witnessed in the above strikes of November series as well. The October Nifty 5000 and 5100 strike call options added 2.64 lakh shares and 2.18 lakh shares in OI taking the total OI of these strikes to 40.16 lakh shares and 56.26 lakh shares respectively. The most active October puts viz- 4900, 5000 and 5100 strikes shed 8.09 lakh shares, 3.43 lakh shares and 3.71 lakh shares in OI.

The ongoing Reliance and Reliance Natural Resources gas dispute will continue to exert downward pressure on the market as the market enters the October expiry week. It would be very important to monitor the F&O segment as it would indicate a trend from the fresh positions being taken in the November series. So far fresh shorts are seen built-up in the November series although the next week will see a clearer picture. Expect huge volatility as we enter the October expiry week.