Equities to stay volatile as F&O expiry nears

Volatility witnessed in the equity market over the past week is likely to continue at least until the December derivatives contract expiry on December 28, derivatives analysts said.

"Volatility is likely to sustain as implied volatility in Nifty December at-the-money contracts has surged to 28-29 per cent from 22 per cent on Monday," said Zeal Mehta, derivatives analyst at Emkay Shares and Stock Brokers.

Implied volatility, also known as 'Vols', represents the volatility of the security underlying an option as determined by the price of the option.

Nifty and Sensex fell over 7 per cent last week before recovering partially in the latter part of the week. Intraday, Sensex and Nifty oscillated as much as 700 points and 200 points, respectively, last week.

On Tuesday, turnover in NSE's derivatives segment was Rs 439 billion compared with Rs 346 billion on Monday. On December 12, turnover was Rs 453.84 billion when Sensex witnessed a 700-point movement in a single session.

"Gyrations in benchmark indices will sustain for the week or two as no consensus on direction is being formed," said Kashyap Pujara, associate vice-president, Sushil Finance Consultants.

High volatility will not lead to any trend, he said, while referring to possibility of indices moving in either direction.

"Nearly 6 per cent intraday rise in implied volatility is significant," he said. In May-June, when benchmark indices slipped over 30%, implied volatility was at its all-time high of over 40 per cent in Nifty contracts.

However, analysts said the leverage in the derivatives segment is not high unlike May-June, which accentuated the fall due to margin calls.

December derivatives expiry is also likely to add to the volatility as foreign funds that cumulatively hold around 30 per cent of open positions will wind up their positions ahead of end of accounting year for these funds, analysts said.