The sentiment is bearish

DERIVATIVES

Last
week

Previous
week

Abs.
chg.

1-m prem/(disc)

-26.90

1.75

-28.65

2-m prem/(disc)

-38.15

-6.35

-31.80

3-m prem/(disc)

-43.15

-17.35

-25.80

Futures OI *

1169.86

1264.58

^-7.49

Options OI *

547.13

988.24

^-44.64

PCR

1.16

1.10

0.06

PVI

1.00

1.06

-0.06

* in lakhs ^ % change

 The first method is cumbersome. The second is possible and it should pay off. It is even possible to sell February and buy March though the differential between those two series is not that great.  However the differential between cash and January is so large, it is tempting to suggest a naked long January future. Even if the cash market drops, the future could rise to align closer to cash price.  In the options market, a bull-spread with long 2850c (30.2) versus short 2900c (16.35) costs about 14 and could pay a maximum of 36. A bear-spread with long 2850p (58.8) versus short 2800p (35.15) costs 23 and pays a maximum of 27.  The wide spreads would be enforced due to lack of liquidity in the intervals between 2800, 2850, 2900, 2950 etc. Despite the good OI, there is little OI except at 50-point intervals.  The bull-spread has better return ratios and there is a chance that it could produce a return even in a net-bearish market. 
 

STOCKS WITH HIGHEST CHANGE IN PREM/(DISC)*
Cos	last week	previous week
IOB	0.75	-1.40
Union Bank	0.21	-1.54
HDFC	5.50	-7.70
Hero Honda	3.50	-5.60
ICICI Bank	2.90	-3.20
HDFC Bank	3.25	-4.20
Vijaya Bank	0.35	-0.20
Bank of Baroda	1.55	-0.40
* - prem/(disc) sorted as a % of cash prices

 Again, because of the lack of OI across the chain, straddles and strangles are difficult to price or prohibitively expensive.  

STOCK FUTURES/ OPTIONS

This is where most of the action is likely to be next week. Apart from Reliance, quite a few majors are showing signs of bearishness. There are only a few that have some chance of bullish action. It's because of the net bearish appearance of individual stocks, that one is assuming the market action could be down.

Four finance sector majors could show bearishness next week. Bank of Baroda, HDFC, HDFC Bank and LIC Housing are all on the skids. Here, the best shot seems to be sells on the January futures.

Hindustan Lever and TCS also appear bearish. Here, apart from standard short futures positions, there is the possibility of bear spreads on the options segment. In HLL, a long 185p (3) versus short 180p (1.5) costs a net 1.5 and could pay a maximum of 3.5. In TCS, a long 1650p (36.6) can be laid off with a short 1590p (8) for a net outlay of 29 and a potential return of 31. This isn't a great ratio so perhaps, it could be avoided in favour of a simple short TCS January future.

The other IT biggie Infosys is an interesting case. There was a sell off down to 2760 levels on massive volumes on Thursday. On Friday, the stock oscillated between 2830-s2880 with open at 2850 and close at 2844. Thursday could have been a selling climax