Derivatives: Expect extreme volatility ahead of the budget
The recent pullback seems to be a technical correction and we expect the market to witness extreme volatility till the budget; gyrations in global market will dictate the domestic market
Firm global market during the past week helped the domestic benchmark S&P CNX Nifty rise 69.60 points during the week ended 11th February 2010 to close at 4826.85. In the F&O segment it was more due to short covering of the stock as well as index futures all throughout the week. The nifty future closed at a marginal premium of 2 points to close at 4828.85. Thus this trend indicates that major participants are cautious to take position ahead of the budget. On Thursday the nifty future shed 13.37 lakh shares in open interest (OI) to take the total OI to 2.85 crore shares. During the full week under review, the nifty February series had shed 28.13 lakh shares in OI. Even most of the front-line stock futures also shed OI due to short covering.
For e.g. Reliance February future shed 5.62 lakh shares in OI during the week under review to take the total OI to 1.1 crore shares. Tata Motors, Unitech, Infosys, SBI and Bharti also shed OI, while Tata Steel, ICICI Bank, Sail and DLF added OI during the week under review. The market rise during the week does not seem to suggest any positive trigger yet, as the pullback seems to be just a technical correction. Volatility will continue till the presentation of the Union Budget 2010-2011 in parliament on 26 February 2010. Expectations on implementation of the goods and services tax (GST) and direct tax code (DTC), exit from the fiscal stimulus, the government's borrowing programme for 2010-2011 and steps to reduce fiscal deficit will provide the future market movement stimuli.
Overall the market wide OI on Thursday stood at 197.21 crore shares, thus falling by 11 lakh shares as compared to the previous day. Major unwinding of OI was witnessed in the index and stock futures, while the index and stock options witnessed addition of OI.
Most active Nifty options (February 2010 series)
OI
Call
Nifty 4700 1865800
Nifty 4800 4551200
Nifty 4900 5537450
Nifty 5000 6032900
Put
Nifty 4600 5346250
Nifty 4700 6419200
Nifty 4800 6104650
Nifty 4900 3010450
Source: NSE
However there were some bullish indicators on the nifty option front as buying was witnessed in the nifty call strike till 5000 while the nifty 4700 strike call witnessed unwinding of OI signifying covering of call written earlier at this strike. The 5200 and 5300 strike also witnessed addition of OI. On the put front also there were positive indicators as 4600 to 4900 strikes witnessed aggressive writing, while 5000 and above strikes witnessed unwinding of puts bought earlier.
The most active calls were 4700 to 5000 strikes, while the most active puts were the 4600 to 4900 strikes. The OI in 4800, 4900 and 5000 strikes increased to 45.51 lakh shares, 55.37 lakh shares and 60.33 lakh shares respectively due to aggressive call buying. The OI in 4600, 4700 and 4800 strike puts increased to 53.46 lakh shares, 64.19 lakh shares and 61.05 lakh shares respectively due to aggressive put writing at these levels.
The recent pullback seems to be a technical correction from an oversold position and the market will wait till the budget thus emitting extreme volatility till then. Till then the mood in the global market will be remain the key for the domestic market.
The recent pullback seems to be a technical correction and we expect the market to witness extreme volatility till the budget; gyrations in global market will dictate the domestic market
Firm global market during the past week helped the domestic benchmark S&P CNX Nifty rise 69.60 points during the week ended 11th February 2010 to close at 4826.85. In the F&O segment it was more due to short covering of the stock as well as index futures all throughout the week. The nifty future closed at a marginal premium of 2 points to close at 4828.85. Thus this trend indicates that major participants are cautious to take position ahead of the budget. On Thursday the nifty future shed 13.37 lakh shares in open interest (OI) to take the total OI to 2.85 crore shares. During the full week under review, the nifty February series had shed 28.13 lakh shares in OI. Even most of the front-line stock futures also shed OI due to short covering.
For e.g. Reliance February future shed 5.62 lakh shares in OI during the week under review to take the total OI to 1.1 crore shares. Tata Motors, Unitech, Infosys, SBI and Bharti also shed OI, while Tata Steel, ICICI Bank, Sail and DLF added OI during the week under review. The market rise during the week does not seem to suggest any positive trigger yet, as the pullback seems to be just a technical correction. Volatility will continue till the presentation of the Union Budget 2010-2011 in parliament on 26 February 2010. Expectations on implementation of the goods and services tax (GST) and direct tax code (DTC), exit from the fiscal stimulus, the government's borrowing programme for 2010-2011 and steps to reduce fiscal deficit will provide the future market movement stimuli.
Overall the market wide OI on Thursday stood at 197.21 crore shares, thus falling by 11 lakh shares as compared to the previous day. Major unwinding of OI was witnessed in the index and stock futures, while the index and stock options witnessed addition of OI.
Most active Nifty options (February 2010 series)
OI
Call
Nifty 4700 1865800
Nifty 4800 4551200
Nifty 4900 5537450
Nifty 5000 6032900
Put
Nifty 4600 5346250
Nifty 4700 6419200
Nifty 4800 6104650
Nifty 4900 3010450
Source: NSE
However there were some bullish indicators on the nifty option front as buying was witnessed in the nifty call strike till 5000 while the nifty 4700 strike call witnessed unwinding of OI signifying covering of call written earlier at this strike. The 5200 and 5300 strike also witnessed addition of OI. On the put front also there were positive indicators as 4600 to 4900 strikes witnessed aggressive writing, while 5000 and above strikes witnessed unwinding of puts bought earlier.
The most active calls were 4700 to 5000 strikes, while the most active puts were the 4600 to 4900 strikes. The OI in 4800, 4900 and 5000 strikes increased to 45.51 lakh shares, 55.37 lakh shares and 60.33 lakh shares respectively due to aggressive call buying. The OI in 4600, 4700 and 4800 strike puts increased to 53.46 lakh shares, 64.19 lakh shares and 61.05 lakh shares respectively due to aggressive put writing at these levels.
The recent pullback seems to be a technical correction from an oversold position and the market will wait till the budget thus emitting extreme volatility till then. Till then the mood in the global market will be remain the key for the domestic market.
