Take bear-spread

DERIVATIVES

-15.85 -15.2 -0.65 2-m pre/(disc)-36.95-26.3-10.65 3-m pre/(disc)-50.3-29.65-20.65 Futures OI*1334.861221.569.28 Options OI*755.45633.319.29 Put call ratio0.820.91-0.09 Put vol. indicator1.190.950.24 * In lakhs  ^ % change  The backwardation appears normal in a bullish market but with four sessions to settlement, it makes sense to take a bear-spread, selling June Nifty and buying July Nifty in the hopes that the 21-point differential will narrow regardless of the absolute index direction.  As usual, in settlement week, traders ought to be generally cautious because of the time-expiry factor. Buying options which are far from money to complete a spread is difficult and there is usually a drastic fall in far-from-money premiums this week. However, despite the sharp rise, there appears to be adequate liquidity for basic spreads. 

Stocks with highest changes in options OI
Stocks	% change  in OI	PCR*
Guj Ambuja	680.06	0.05
TVS Motors	340	0.06
Mah. Seamless	258.33	0.03
NDTV	252.63	0.07
Reliance Ind	206.47	0.47
i-flex	197.62	0.18
Cummins India	124.24	0.05
Hindalco	13-Apr	0.01
Reliance Cap	81.22	0.33
Jindal Stainless	75.00	0.05
* Put-call ratio

 A conventional bull-spread of long 2200c (14) versus short 2220c (7) costs 7 and it could pay a maximum of 13. A conventional bear-spread of long 2190p (29) versus short 2170p (18) costs about 11 and pays a maximum of 9. The difference in the return-risk ratios suggests that the market expects a bout of profit-taking. 

Stocks with highest changes in futures OI
Stocks	% change  in OI	Future  1-m price
Guj Ambuja	549.6	61.85
Cummins India	496.25	135.45
Reliance Cap	67.20	342.40
NDTV	54.10	217.15
Reliance Ind	52.89	648.65
Jindal Stainless	49.06	129.05
India Cements	34.01	75.40
LIC Hsg Fin	29.14	225.60
Satyam	27.25	498.40
IOC	25.07	432.50

 A strangle such as a short 2200c (14) versus short 2180p (24) pays 38. If this is offset with a straddle of long 2140 p (8.25) and long 2240c (5) costing 13.25, the net premium inflow at current rates is about 25. This position would be profitable overall if the market doesn't move outside -2160-2220. 

Major prem/disc* movements in stock futures
Stocks	Last  week	Previous  week
Tata Motors	-2.75	-10.4
Jet Airways	-2.7	-16.65
HDFC Bank	-0.3	-6.25
M&M	-13.64	-18.2
Maruti Udyog	-0.95	-4.6
Infosys	7.35	-11.65
Bharat Forge	9.1	-2.15
Bhel	-0.85	-7.6
BEL	7.15	2.15
Satyam	0.35	-2.85
*Prem/(disc) sorted as a % of cash prices

 

STOCK FUTURES/ OPTIONS

Obviously Reliance group stocks were the centre of attention. A brief assessment of the technical position in the Reliance majors follows.

In general, the stocks seem to have advanced sharply enough for us to witness alternate bouts of profit-taking and new buy orders in this week. Caution in settlement week would be the watchword. 

RIL: The stock now appears to be stuck between 645-660. Any breakout from these zones would lead to a move either to 630 or to 675, depending on the direction. The long-term target is at least 675, so there is a case for taking a long RIL June future.

However, there's only four sessions left and it may also make sense to wait for the settlement. A bull-spread of long 660c (7.5) versus short 680c (3) costs 4.5 and it could pay off if RIL rises above 665 in this week.

REL: There's been a clear pattern of profit-taking in the stock over the last three-four sessions and due to the jump, there are no clearly established supports close to spot. With spot placed at 645, it may make sense to take short June REL futures on intra-day basis.

In the options segment, a long 640p costs 12.55 but this can't be laid off because of lack of liquidity in the option chain between 600-640. Avoid in the options segment until the next settlement and look out for intra-day short positions in the futures segment.

IPCL: The stock has seen the least movement and stayed stuck inside the narrow range of 165-170 although it has seen volume expansion. Avoid till the next settlement because there's no discernible trend as such.

Reliance Capital: The spot price has shot upto 340-odd on extremely high volumes and with a very steep slope, gaining 100 in just about 5 sessions. At 250, it achieved a five-year high, which it has broken in every subsequent session.

The long-term trend is very positive with a target of 450 apparent in a timeframe of 6 months. The advice would be to go long in the June futures segment but there's insufficient liquidity to create bull-spreads in the June options segment.

Among other stocks, Bajaj, Bharat Forge, Hero Honda, HLL, Hindalco and ITC all look like potential bullish payoffs in the futures segment. But it may make more sense to wait for the July settlement in each of these cases.

There are no obvious arbitrages in the futures versus spot prices in these cases and the technical patterns don't seem to justify sticking one's neck out.

In the rest of the futures segment, there are some possible arbitrages. M&M for example is trading at 576 in spot and 562 in the futures segment.

Since the stock looks bullish, a June future may be lucrative since the differential must disappear. Infosys is trading at 2320 in the futures segment and at 2313 in spot. The stock looks as though it could dip further and selling the June future would work in this case.