May futures at a discount

DERIVATIVES REPORT

Volumes in the derivatives segment of the National Stock Exchange (NSE) was at Rs 4,900 crore on Monday where the trading time was truncated with the market being frozen for around three hours after hitting the circuit breakers twice during the day.

The Nifty May series was trading at a discount of 50 points to the spot Nifty, which ended the day's trading at 1388.75, down by 193.65 points.

There was also an addition of three lakh shares in open position to the Nifty futures. Dealers tracking the segment said that open interest fell by more than Rs 1,000 crore and the fall was across all counters.

However, the volumes picked up when trading re-opened for the second time on the exchange. Apart from the Nifty futures, the other top traded counters in the futures segment were Reliance Industries, Tata Steel, Tata Motors, ONGC and State Bank of India. Individual stock futures saw volumes of Rs 2,251.50 crore, while Nifty futures recorded a volume of Rs 2,330.91 crore.

The implied volatility of the Nifty with a strike of 1,570 was around 80 per cent.

However, strikes were not easily available and investors were again unable to hedge their positions. Foreign institutional investors, unable to sell in the cash market, have been steadily shorting the futures and their open interest position as of Friday was worth 1.3 crore share, against the market-wide open interest of 1.4 crore shares.

Most futures lost substantial open interest. Reliance Industries, MTNL, IPCL, Tata Steel and Union Bank shed over ten lakh shares each in open positions.

For most stocks the implied volatility went up to between 60-70 per cent. Futures also witnessed heavy backwardation on considerable selling and provided huge opportunity for arbitrage.

Foreign institutional investors were net sellers to the tune of over 9,000 contracts in the Nifty and their outstandings were 66,085 contracts.