Open interest positions skid

DERIVATIVES REPORT

The huge fall in the share prices sent shock waves through the derivatives segment as investors found themselves unable to hedge their positions with no strikes available. Total volumes in the derivatives segment was Rs 14,691 crore, with index futures dominating with Rs 6786.04 crore.

There was a massive fall in the open interest position of all leading stock futures, while investors had to cut positions as they were unable to pay their margin calls. Navneet Bansal, associate vice president, derivatives at Kotak Securities said that things would only worsen if the market continued to drop.

Manohar Wadhwa, manager derivatives at SSKI Securities said, "The effect of the crash in the cash market was that people could not hedge their positions as there were no strikes available." The Nifty May series ended at a discount of 7 points to the spot Nifty at the end of the day.

Rohan Deshpande, derivatives strategist with Renaissance Securities said, "In the absence of any hedge position being built, it is giving rise to more speculative moves. Apart from the funds that are exiting, there are short positions being built up, allowing political imperatives to dominate the fundamentals."

The last strike available in the case of Nifty was 1670, but throughout the day the Nifty was trading at 1500 levels so "there was no at-the-money opportunities," Wadhwa pointed out.

Foreign institutional investors, who were heavy sellers in the cash market, were still hedging their exposures in the cash segment by taking positions in Nifty futures.

According to data available on the Sebi site, on Thursday the total open interest with the FIIs was worth around Rs 5,000 crore. The statistics showed that FIIs are hedging both on the index as well as individual stock futures.

The implied volatility in the case of Nifty options also rose to 50 per cent.

However the position in the futures and options segment would depend a lot on what would happen in the derivatives segment. Marketmen said that those who had huge cash exposures would be selling Nifty futures at this juncture as a hedge. The premium on buying Nifty puts would be too high.

However most of the investors, who have the capacity, are holding on their exposures while those unable to fulfil their obligations towards mark-to-market margins (which has to be paid daily) are cutting positions.