Recovery could continue

DERIVATIVES

Last
 week

Previous
week

Abs.
chg

1-m prem/(disc)

1.75

2.10

-0.35

2-m prem/(disc)

-2.85

-6.65

3.80

3-m prem/(disc)

-7.95

-6.40

-1.55

Futures OI *

1373.58

1055.19

^ 30.17

Options OI *

996.42

650.11

^ 53.27

PCR

0.91

0.91

0.00

PVI

1.40

1.22

0.18

* in lakhs

 Index strategies
The market is in an intermediate downtrend. However the short-term recovery on Friday could certainly continue and push values up by another 40-odd points till around Nifty 2485 where there is a huge resistance.  It's possible that the market (or at any rate, that group of stocks which counts in the F&O segment) will stay range-bound or mildly bullish until settlement. However, it would be prudent to assume that the November settlement will come into play with either a mixed trend or a bearish outlook.  In terms of PCR, PVI, etc, the market isn't oversold; the values are in the neutral zone in the light of recent history. The expansion in OI is very interesting, given there's just four sessions till settlement.  It's especially interesting when we note that the PCR hasn't risen in tandem with the OI. To my mind, this means long calls have been created in the past 3-4 sessions - and that implies there is a body of traders gambling on, or hedging against a price rise, within the settlement.  In the futures market, the October contract (2445) is at a small premium to spot (2443), but November is at a small discount (2441). A calendar bear-spread is obvious - if we sell October and buy November, we should pick up a tiny differential of about 5 on Thursday when the October contract is extinguished.  This differential is however, too small to trade for gain even though it seems safe. It will only produce a worthwhile gain if the market spurts on Wednesday or Thursday and the November contract ends up trading at a respectable premium.  In the interest of completeness, we'll give all the standard spreads with prices. But the usual caveats exist against trading in the last week of settlement. Premiums on out of money options drop drastically because of settlement considerations and it's quite possible to end up being unable to settle a position