Rise in open interest could rock the market boat


Reader Response to “Don’t Marry Career Women” – Rise in open interest could rock the market boat

Rise in open interest could rock the market boat
happy_joey
Regular Visitor
happy_joey

FII arbitrage in single stock futures indicates currency play.

Foreign institutional investors (FIIs) were net sellers in single stock futures for Rs 586 crore last week after being net sellers for Rs 1,011 crore in the week before last. Selling by FIIs of single stock futures and buying in the cash market indicates cash futures arbitrage. This is also corroborated by the positive cost of carry in well traded single stock futures. This indicates positions on currency being built through cash futures arbitrage ahead of the G7 meet over the weekend. The market expects pressure on China to widen the yuan band, which will be positive for Asian currencies.

According to BOSSLINK.com, in the broad market, the Nifty index futures price managed to stay in the positive territory last week in spite of a single day fall of over 3% on September 11. It closed last week at 3475 levels, a marginal gain of 0.12% week on week. The price has now ended in positive territory for the eighth consecutive week.

Open interest in Nifty index futures increased by around 6% week on week. Nifty index futures have gained in open interest by 20% over the last two weeks.

Last week, the broad market fell initially by 3% owing to a global weakness in commodities. However, the recovery was swift and sharp and the market wiped out all its losses in two trading days. The Nifty index futures price rose in spite of selling of index futures by FIIs for the second consecutive week. FIIs, who were net sellers in Nifty index futures of over Rs 1100 crore in the week before last, were net sellers last week for Rs 118 crore.

Market volatility was higher last week, with the average daily volatility for the Nifty index, as indicated by the difference between daily highs and lows, at 2.64% last week against 1.28% seen in the week before last. Single stock futures added open interest as players increased leverage in a volatile market. The increased open interest in Nifty index futures and single stock futures is expected to add to volatility this week. The fact that the market is also trading at close to all-time peaks, will increase uncertainty in the near term direction of the broad market. Oil and commodity prices and outcome of the G7 meet over the weekend could lend direction to the market.

Top five traded single stock derivative contracts
The top five traded single stock derivative contracts for last week were Reliance, Tata Motors, Reliance Capital, Sterlite and Tata Steel. The list is unchanged for last week from the week earlier to last.

Reliance stock futures price closed up by around 0.50% while open interest increased by over 13% week on week. Reliance stock futures open interest has increased by close to 50% over the last two weeks. Cost of carry was down to 11% last week from 17% levels seen in the week before last. The stock could see large directional moves in the coming week, given the sharp increase in open interest.

Tata Motors stock futures price closed almost flat week on week while open interest increased by over 14%. The stock futures price closed at a 6.3 point premium to spot, indicating a positive carry of around 20%. The stock is expected to see higher volatility in the coming week given increased leverage.

Reliance Capital stock futures price gained around 7.8% week on week while open interest fell by almost 20%. The fall in open interest against a price gain suggest profit taking at higher levels. Reliance Capital is likely to see lower activity in the coming week.

Sterlite stock futures price lost 6.3% week on week while open interest was higher by around 5.5%. The stock reacted to fall in metal prices in the global market, though players did not add on much of leverage in a highly volatile market for metal stocks. The stock futures will see high trading interest given the recent falls in commodity prices.

Tata Steel stock futures price lost around 4.7% week on week while open interest came off by 6.1%. The stock futures price reacted to fall in metal prices in the commodity market. Players, however cut leverage given high uncertainty on metal prices.

Nifty index futures
Nifty index futures price gained marginally 0.12% last week while open interest increased by close to 6.1%. The basis spread closed last week at a premium of 1 point to spot from a premium of 5 points to spot on the last day of the week before last. The Nifty index futures is struggling to cross and stay over 3480 levels, even as leverage is being built. Volatility is expected increase in the coming week given increased leverage and high levels of the market.

Nifty index options
Nifty index options saw call and put options premiums lose across strikes, given the flat market close and time decay. Losses in call premiums at around 10% to 15% were lower than losses in put premiums which lost around 20% to 25%. Call option implied volatilities (IV’s) were higher at 24% from 21% levels, while put option IV’s were flat at 26% levels, week on week. Open interest was added across contracts. Nifty index options should see volatility increase in the coming week given increase in leverage across derivatives.

FII activity
FIIs were net sellers in Nifty index futures for Rs 118 crore last week against net sales of Rs 1104 crore in the week before last. FIIs were net sellers in single stock futures for Rs 586 crore against being net sellers for Rs 1011 crore in the week prior to last week. FIIs continue to arbitrage on single stock futures as they were net buyers in the cash market last week. There is an indication of positions on currency being built through equities ahead of the G7 meet over this weekend. The market expects pressure on China to widen the yuan band, which is positive for Asian currencies.

Productwise traded volumes
The daily average volumes in the derivative market was higher last week at Rs 25,973 crore against Rs 20,010 crore recorded in the week before last. Nifty index futures accounted for 36% of total daily average volumes last week, while single stock futures accounted for 49% of total daily average volumes. Nifty index futures saw increased volumes as the broad market volatility increased. Volumes are expected to increase in the derivative market given the increase in leverage over the last week.

Keyword: FII  market
Content Classification: Marketing
Quote from: http://blogs.bosslink.com/html/trackback.do?id=131&type=1

09-18-2006 05:35 AM

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