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Futures - Nov 13 2007

Futures - Nov 13 2007

Weekly Technicals, Futures, Trace Track

Weekly Technicals, Futures, Trace Track

India stock index futures reflect correction fears

he discount on India's benchmark stock index futures to the cash market widened on Wednesday, as traders expecting a correction from the current record levels went short on the underlying, analysts said.

The long interest seen in recent days was unlikely to continue, they said.

"It looks overbought," said Amit Hiremath, fundamentals and derivatives analyst of IDBI Capital. He pointed to the rising cost of carry on index futures, currently at 19.4 percent, as a case in point.

Another analyst said the options market presented more evidence of an impending correction, with the implied volatility in index puts going up and reaching 20.4 percent on Wednesday.

This is an indication of the degree by which investors expect the market to swing.

"A certain imbalance has been created. Both these factors taken together indicate that there will be either a correction or a fall," Siddharth Bhamre, an analyst at Angel Broking, said.

He, however, ruled out a Nifty fall of more than 150 points and said the index could see support at 4350 levels.

The near month contract closed with a discount of 18.25 points at 4,481.30 points, compared with a discount of 15.5 points in the previous session.

The benchmark 50-share NSE index closed up marginally at 4,499.55 points.

Weekly Technicals, Futures Focus

Weekly Technicals, Futures Focus

Put-Call ratio dip indicates bullish sentiment

At a time when oil and gas sector stocks, along with banking and information technology companies, continue to hog the limelight on the 30-share BSE Sensitive Index, buyers on the National Stock Exchange (NSE) are outnumbering sellers and positively impacting the market.

In fact, the put-call ratio of the stock options market on the NSE decreased to 0.14 in June, from 0.15 in the first month of the year after reaching a highest level of 0.20 in March.

This plunge reflects a bullish sentiment, as the put-call ratio is one of the best gauges to judge oversold (too bearish) or overbought (too bullish) zones.

Utpal Chaudhary, V-P, IDBI Capital said, “Sentiment has been positive over the period and that resulting into lower put-call ratio.” Here buyers have the right but not the obligation to sell the underlying security at a pre-determined price (called the strike or exercise price) on or before a particular date (expiry date).

The volume of call options have decreased from 98.86 crore in January, to 64.53 crore in March.

The volume reached a higher level of 109.00 crore in June. Call option is an agreement that gives an investor the right—not the obligation—to buy a stock, bond, commodity, or other instrument at a specified price within a particular time period.

As far as volume of put options is concerned, it decreased from 15.16 crore in January, to 13.16 crore in March. It went northward to 15.46 crore in June.

Similarly, in terms of value, call options showed a steady decline from Rs 16,704 crore in January, to Rs 9,530 crore in March. It increased to Rs 18,359 crore in June.

On the other hand, the value of put options showed a different trend. The total value decreased from Rs 2,697 crore in January, to Rs 2,576 crore in March and thereafter increased to Rs 3,569 crore in June. Top five companies in terms of call options in June 2007 are RIL (Rs 2,364 crore), SBI (Rs 1,538 crore), Reliance Petroleum (Rs 1,457 crore), Tata Steel (Rs 1,111 crore) and IDBI ( Rs 1,090 crore).

Similarly in terms of value of put options, the same companies made it to the top-five list—RIL (Rs 661 crore), SBI (Rs 642 crore), Tata Steel (Rs 361 crore), Reliance Petroleum (Rs 211 crore) and IDBI ( Rs 163 crore).

DLF July 2007 futures most active

Futures settle at premium on debut

Nifty July 2007 futures settled at 4355, a marginal premium of 1.05 points as compared to spot closing of 4,353.95

Real estate major DLF July 2007 futures settled at premium, at 574, compared to the spot closing of Rs 568. It was the top traded counter with turnover of Rs 2517.30 crore. The stock debuted today in F&O segment with lot size of 400 shares. It hit a high of 578.40 and low of 544.15 today.

Reliance Industries July 2007 futures settled at a premium, at 1722.10, compared to the spot closing of Rs 1713.20.

SBI July 2007 futures settled at a sharp premium, at 1560.10, compared to the spot closing of Rs 1545.15.

In the cash market, the S&P CNX Nifty lost 5.35 points or 0.12% at 4,353.95. It had hit an all-time high of 4,386.45 on Wednesday, 4 July 2007.

Futures & Options Strategy

Nifty futures gain OI to the tune of 1.89% with index closing positive. Market was range bound during today's session and given a strong close on the day's high. Market was moving in a range of 50 points during whole day. Today's closing has given a sign of strength in the market. At the end, Nifty closes positive and given a close above 4250 levels, which was very important levels for the market. Nifty futures close with a discount of 14 points, which indicates profit booking in the market. The FIIs bought index futures to the tune of Rs. 322.66 Crs and sold stock futures to the tune of Rs. 392.35 Crs. The PCR has come up from 1.41 to 1.44 levels, which indicate strength continuing in the market. The volatility has gone up from 32.40 to 36.25 levels indicating volatility expected by market participants.

Among the Big guns ONGC gains OI to the tune of 4.00% with prices going up during the day, indicating strength in the counter and strong buying at lower levels, at last counter has given strong support to the market to get sustain on higher levels. RELIANCE gains OI to the tune of 4.50% with prices closing negative indicating liquidation and profit booking in the counter, however counter witnessed liquidation by bulls in the counter on higher levels during today's session.

On the TECH front, TCS, INFOSYSTCH & WIPRO gains OI with decline in price indicating profit booking and liquidation in the counters. Counters have given a weak close that is almost on day's low indicating further weakness in the counters. Counters have shown strength in the early morning as the Dollar comes up but later on investors has liquidated their positions indicating that the uncertainty prevailing in the market regarding the Exchange rate. SATYAMCOMP gains OI with gain in price indicating strength in the counter, counter has seen strong buying on lower levels and can outperform the sector.

On the Metal front, TATASTEEL, SAIL, HINDALCO & NATIONALUM gains OI with rise in price indicating strength in the counters. At the end of the all, the counters closed positive. Counters have shown strong buying on lower levels. Counters have also witnessed short covering by bears on higher levels and given a strong close during today's session.

In the BANKING arena, SBIN & HDFCBANK loses OI with increase in prices, indicating strength in the counters. Counters have seen short covering by bears on higher levels. ICICIBANK & BANKBARODA loses OI with gain in price indicating liquidation of long positions in the counters.

During today's session Nifty futures has seen strong buying on lower levels near 4250 levels and given a strong close above the important level of 4250. Overall nifty has strong support around 4250 levels. If Nifty given a close below 4200 than we can see fresh short position in the market. One should take hedged positions in the market to minimize the risk.

Protect your lever

Via Business Standard Stock market volatility is increasing along with prices. How should you use leverage in such situations?

Every bull run culminates in a peak and is followed by a correction. Bear this in mind, with the stock market close to its all time highs. That final peak may come tomorrow or a year later.

When it arrives, you should be braced for the end of the party. In a market trading close to its historic peak, volatility is high. As and when the trend reverses, momentary panic will lead to additional volatility.

Especially for traders, using borrowed capital and leverage, a trend change may be disastrous. Margin is inevitably raised and most traders are over-exposed and unable to meet margin calls. The broker gets spooked and cuts losing positions off.

Volatility in itself is not dangerous. If you've read the trend right, you make more money in a high-volatility market. Leverage is also neutral – it amplifies both gains and losses. But a combination of high volatility and high leverage is disastrous to the trader on the wrong side of the trend.

Traders avail of leverage in both spot and F&O segments. In spot, leverage comes through funding and day-traders are sometimes offered leverage of up to 10:1. F&Os are naturally leveraged and the leverage on a long option is theoretically infinite.

A note of caution is struck by Manish Bandi, Vice President, Wealth Advisory Services, India Infoline, who says “Global concern over inflation and the expected hike in interest rates globally may result in extremely high volatility in the market. In the present scenario, we do not advise retail investors to leverage in cash markets.”

Other market analysts concur that a degree of overheating is visible. “There has been an excessive build up of positions. Investors are, therefore, advised to cut down positions according to their capacity to handle repercussions in the event of a fall-out.” Dinesh Thakkar, CMD, Angel Broking.

The trader must be disciplined. Don't get greedy, set stop losses, and don't commit more than say, 5 per cent of capital to a given trade. According to Nihar Oza, vice-president, Brics Securities, you should not leverage more than 50 per cent of your own capital.

For example, if your trading capital is Rs 100, then Rs 40 should be assigned for completely-owned positions and Rs 40 for leveraged positions. The remaining Rs 20 should be held in cash as a cushion against mark-to-market differentials.

Here is a description of how margin works in spot and F&O segments. Margin trading and leverage are perhaps easiest explained through an example.

“We allow intra-day margin trading in a large basket of liquid shares and normally allow an exposure of five times (20 per cent margin),” claims Sudip Bandyopadhyay, CEO Reliance Money.

This 5:1 leverage ratio allows disproportionate profits and losses. Take Reliance Industries at its current price of Rs 1728. You buy 500 shares of Reliance (value Rs 864,000) by paying only Rs 172,800 or 20 per cent of contract value.

If the stock price rises 2 per cent, the return is Rs 17,280 or 10 per cent appreciation on Rs 1,72,800. But leverage is double-edged. If the above position sees a 2 per cent price depreciation, that translates into a 10 per cent loss of capital.

Borrowing for delivery, brokers may fund anywhere between 50-80 per cent of a delivery position through affiliate financiers. The cost ranges between 18-22 per cent per annum. At 50 per cent funding, a 1 per cent rise translates into 2 per cent profit, less interest.

When there's a big trend reversal like in the crashes of May 2006 and March 2007, traders with highly leveraged long positions get wiped out. The graph shows, that an investment of Rs 100 in the Sensex in January 2007 would have dropped to Rs 85 during the crash of March 2007. But if you had 4:1 leverage, your losses would have been magnified to Rs 60.

Another important thing to remember is that small stocks mean big risk. Risks are usually higher in mid-caps and small-caps. When two stocks have the same average volatility, the variance of the smaller stock's returns is usually higher.

Smaller stocks fall more than the market index during crashes – they have high betas.

During the crash of May 2006, the BSE Midcap and BSE Smallcap were down 38 and 42 per cent respectively, much more than the Sensex fall of 29 per cent. Importantly, small counters also become illiquid and investors are often left without an exit option.

Apart from trading in the secondary markets, investors borrow money to apply for IPO, intending to sell allotments on listing. Finance companies charge about 18-20 per cent for IPO finance.

IPOs such as Mindtree Consulting, Nitin Fire and MIC Electronics have given massive gains on listing. And a holding period of 3-4 weeks means that an absolute gain of 10 per cent annualises to 120 per cent.

This is tempting but you need a clear understanding of IPO mechanics, over-subscription ratios, etc. Ambreesh Baliga, VP private client group, Karvy Stock Broking opines “I do not think leveraging in primary markets is a good idea when cost of funds is high”.

If there isn't a gain on listing, you're left with a capital loss and an interest payment to service. Higher the subscription to an issue, lower are the allotments. This can mean a high per share cost (after accounting for interest charges) and hence higher is your break-even point. Take two contrasting examples. Nitin Fire offered 75 per cent gain on listing. Mudra Lifestyle lost 30 per cent.

F&O margins: The NSE's F&O margin system relies on the SPAN model. It is like a black box: you plug in contract details and it spits out the required margin.

SPAN margin changes continuously and in addition, there's an exposure margin. SPAN adjusts for spreads and other combined F&O positions. The required margin is usually between 8-25 per cent on a futures position. It's a minimum 7.1 per cent for index futures and 10.5 per cent for stock futures.

On long options, there is no margin since the premium covers maximum loss. Option premiums are generally 1-2 per cent of contract value for close-to-money positions. Out-of-money short options require margins of between 7-15 per cent of contract value. Thus, margin on a short option is often 5 times as high as the premium.

Option leverage is much more variable than futures leverage. Suppose you have paid 1 percent of contract value to buy an option that is struck. The premium may double –even while the position is at break-even.

Futures offer symmetrical gain and loss. Suppose you commit Rs 200,000 to buy a stock and pay Rs 40,000 margin (@ 20 per cent) to take the corresponding short futures hedge. Whether the stock rises or drops, your total portfolio value stays the same. If you take an incomplete hedge (buy Rs 400,000 stock and pay Rs 40,000 @ 20% margin to take a single lot) your loss is halved but so is your profit.

Options offer more versatile hedges because loss-gain is asymmetric. For example, assume a Rs 200,000 stock position and buy a long put 1 per cent from money at 1.5 per cent premium.

Your maximum loss is 2.5 per cent if the stock drops 1 per cent and the premium doesn't rise. If the stock drops over 1 per cent, the option kicks in. On the upside, gains are unlimited once price has moved more than 2.5 per cent up.

Stock options, especially puts are illiquid. To hedge a stock position, in practice you will have to use index options.

This requires 1) computing beta and correlation for the given stock with the Nifty 2) using regression analysis to judge the “fit” of beta 3) taking an appropriate index option position that protects against an adverse move. This is cumbersome and never produces a complete hedge.

Conclusion: While margin and leverage are tempting, they are two-edged swords. Don't go overboard trying to maximise gains because you could end up with larger losses.

Reading F&O warnings There are several volatility-related signals across F&O and spot markets that can offer advance warning when a market peak is round the corner. IV signals Implied volatility always spikes when the market is close to a peak and it usually stays high until the crash is over. IV is usually low in a rising market. In May 2004, as the market crashed, IV jumped from 25 per cent to 70 per cent. From September 2004 to March 2006 as the Nifty smoothly gained 105 per cent, IV stayed between 15-30 per cent. In May 2006, it spiked above 60 per cent as another crash occurred. On historical evidence, any Nifty IV reading of over 30 per cent is a danger signal. Divergence in HV-IV: During an uptrend, the IV tends to be lower than the HV. Discount to HV is a good sign and a premium to HV appears to be a danger signal. Stock futures OI: Another useful signal is the open interest in stock futures. A very high stock futures OI is a danger signal. Especially so if it comes in a market with falling volumes. This combination of high OI and low spot volumes is a classic sign of a market top. A stock OI of around Rs 30,000 crore seems to be a danger signal. Spot Volumes A rising price should always be backed by high volumes that signify there is no easing in demand as price rises. Near a market peak, spot volumes usually decline and start thinning out – this signals that demand is dropping. Breadth: A market where breadth is strong is a healthy bull market. Near a market peak, trading interest tends to narrow and declining shares start to outnumber advances. Depth: As prices fluctuate, so do trading volumes. In a market with good depth, a price fluctuation will not lead to an instant loss of volumes. That is, say a given share see a volume of 200,000 at a price of Rs 100. If the volumes remain constant when the shares rise to 110, or if it drops to 90, we have a deep market. Near a market peak, small price changes lead to large volume changes.

F&O Margin Situations Assume Nifty is at 4250. The market lot is 50. All margin calculations are indicative. Both Span and EM subject to continuous change. 1) Buy a future or sell a call/put at the money (Nifty 4250). Contract Value = 212,500 (4250X50) Margin (Span 8.5%+ EM 3%) =11.5% =Rs 24,438 2) Sell out of money call @ 4300 strike for premium of Rs 22 Premium received = 1100 Contract value (4300+22)X50 = 216,100 Margin Span =(8.5-1)+ EM 3%= 10.5% =22,700 (Span is lower by the percent difference between strike and spot) 3) A bull spread Buy 4300call for 22 premium =Rs 1100 paid And sell 4350call for 8.5 premium =425 received Total premium paid = 675 Short call contract value = 50X (4350+8.5) =217,925 Margin = approx 4% on short call = 8,700

Futures & Options Strategy

Nifty futures lose OI to the tune of 8.50% with index closing positive. Market was range bound during today's session and given a strong close on the day's high. Market was moving in a very narrow range of 30 points during whole day. Today's closing has given a sign of strength in the market. At the end, Nifty closes positive and given a close above 4250 levels, which was very important levels for the market. Nifty futures close with a discount of 30 points, which indicates profit booking in the market. The FIIs sold index futures to the tune of Rs. 765 Crs and sold stock futures to the tune of Rs. 235 Crs. The PCR has come up from 1.40 to 1.42 levels, which indicate strength continuing in the market. The volatility has come down from 25.65 to 26.45 levels indicating volatility expected by market participants.

Among the Big guns ONGC loses OI to the tune of 7.00% with prices going up during the day, indicating some strength in the counter and buying at lower levels, however counter has also seen profit booking on higher levels. RELIANCE loses OI to the tune of 7.50% with prices closing positive indicating strength in the counter, However counter witnessed short covering by bears in the counter on higher levels during today's session.

On the TECH front, TCS, INFOSYSTCH, WIPRO & SATYAMCOMP loses OI with decline in price indicating profit booking and liquidation in the counters. Counters have given a weak close that is almost on day's low indicating further weakness in the counters. Counters are not showing any strength during today's session, remain dull, and at last closed negative. From last few trading days, counters are not giving any significant move in either direction, which is due to the appreciation of rupee. Now the market participants are losing there interest in the counters.

On the Metal front, TATASTEEL & SAIL loses OI with decline in price indicating liquidation in the counter. At the end of the counters closed negative. HINDALCO & NATIONALUM loses OI with gain in prices indicating strength in the counter. Counters have witnessed short covering by bears on higher levels and given a strong close during today's session.

In the BANKING arena, SBIN, HDFCBANK & ICICIBANK loses OI with decrease in prices, indicating weakness in the counters. Counters have seen liquidation of long position on higher levels during today's session. BANKBARODA gains OI with rise in price indicating strength in the counter. Counter has given a close almost on the day's high and seen fresh buying on lower levels.

During today's session Nifty futures has seen strong buying on lower levels near 4220 levels and given a close just below the important level of 4250. Overall nifty has strong support around 4250 levels. If nifty given a close below 4200 than we can see fresh short position in the market. One should take hedged positions in the market to minimize the risk.

Religare - Daily Technicals, Futures, Market Outlook - June 14 2007

Religare - Daily Technicals, Futures, Market Outlook - June 14 2007

Edelweiss - F&O Perspective, Stay Put

Edelweiss - F&O Perspective, Stay Put

Religare - Daily Technicals, Futures, Outlook - May 11 2007

Daily Technicals

Futures

Outlook

Religare - Daily Technicals, Futures, Outlook

Religare - Daily Technicals, Futures, Outlook

Motilal Oswal - Daily Reports - May 9 2007

Motilal Oswal - Daily Reports - May 9 2007

Religare - Daily Market Outlook & Futures - May 8 2007

Religare - Daily Market Outlook & Futures - May 8 2007

Religare Weekly Technicals, Futures, Daily Technicals

Religare Weekly Technicals

Futures

Daily Technicals

Religare - Daily Market Outlook, Futures & Technicals & Anand Rathi Technical Note & Strategist

Religare - Daily Market Outlook, Futures & Technicals - Apr 24


Nifty and Sensex have exhibited a narrow candlestick with a longer upper shadow.

Technically, one may use the level of 3995 (Nifty) and 13675 (Sensex) as the stop loss level.

Nifty faces resistance at 4125 and Sensex at 14050.

BSE Smallcap exhibited a bearish candlestick and BSE Midcap exhibited a narrow candlestick.

CNX IT has lost ground.

In the Punter's zone we have a BUY in G.E.Shipping & SELL in Tata Steel and Suzlon.

In the Technical call section, we have a BUY in Exide Industries , D.C.B. & Lyka Labs.

Anand Rathi - Daily Technical Note - Apr 24


The NIFTY futures saw a rise in OI to the tune 1.53% with prices coming down and closed almost flat indicating selling pressure emerging at higher levels indicating short positions being built up at higher levels. The FIIs sold index futures to the tune of 66.45 crs and buyers in index options to the tune of 129.74 crs indicating hedged positions built by them. The PCR has come up from 1.24 to 1.28 indicates that some buying support may emerge in the market. The volatility has come up from 23.20 to 28.50 levels indicating volatile trading sessions ahead.

Among the Big guns, ONGC saw 0.60% rise in OI with prices coming up 1.57% indicating that the counter saw buying support emerging at lower levels indicating strength in the counter. Whereas RELIANCE saw 4.74% drop in OI with prices rising marginally indicating that both bulls and bears liquidated their positions as market showed selling pressure at higher levels.

In the TECH front, INOFSYSTCH, WIPRO & SATYAMCOMP saw liquidation of positions by both bulls and bears indicating uncertainty expected by participants of market movement .TCS saw built up in OI to the tune of 1.42 % with fall in prices to the tune of 0.79% indicating short positions being built up in the counter indicating weakness in the counter.

In the BANKING counters, SBIN saw drop in OI to the tune of 5.59% with drop in prices to the tune of 1.28% indicating lack of confidence in the participants as both bulls and bears liquidated their positions whereas ICICIBANK saw RISE in OI to the tune of 6.46% with prices almost flat indicating buying emerging at lower levels in the counter indicating further strength in the counter .HDFCBANK saw rise in OI to the tune of 5.77% with price negative indicating short positions being built up in the counter indicating weakness in the counter.

In the metal pack TATASTEEL saw drop in OI to the tune of 3.10% with price up significantly indicating heavy short covering in the counter as counter crossed its resistance levels which may result in further strength in the counter whereas SAIL saw marginal OI with rise in prices indicating short covering seen in the counter and built up of fresh long positions indicating further strength in the counter.HINDALCO saw drop in OI with prices rising indicating short covering seen in the counter whereas STER saw liquidation of positions by both bulls and bears.

Considering the overall scenario and the markets behavior, market showing volatility as selling pressure emerging at higher levels and profit booking seen in the market. If market doesn't sustains after credit policy announcement we may see liquidation of long positions and bears building fresh short positions. Traders are advised not to go aggressively short on the market unless important support level of 3990 is breached and any position taken should be with strict stop losses to be adhered too.

Anand Rathi - Daily Strategist - Apr 24

Religare - Daily Market Outlook, Futures & Technicals

Religare - Daily Market Outlook, Futures & Technicals

Religare - Daily Market Outlook & Futures

Religare - Daily Market Outlook & Futures