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Good demand for November calls

B. Venkatesh

THURSDAY'S trading in the derivatives segment continued to reflect a bearish outlook on the market. The following are some of the pointers from the day's trading:

AThe November 960 calls were in good demand. The calls closed 10.5 per cent higher at Rs 33.50 with volumes amounting to 402 contracts. The open interest in the calls now stands at 712 contracts.

*Considering that the Nifty spot index closed at 994, the demand for 960 calls seems to suggest that the dealers expect the current upmove in the market to be temporary. Otherwise, dealers may have perceived value in the 980 calls, whose premium was 61 p er cent lower than that on the 960 calls.

*Despite the November 960 calls currently being Rs 34 in-the-money, the probability of the call expiring in-the-money is just 0.56.

*The November 980 calls closed the day at Rs 22, 10.60 per cent higher than the previous day. Volumes in this strike amounted to 276 contracts. The 980 puts also closed at Rs 22, with volumes amounting to 143 contracts.

*The probability of the 980 calls ending in-the-money is twice of that of the puts ending in-the-money.

*The signals from the 960 and 980 calls are contradictory. While there was heavy demand for 960 calls, option delta suggests that the 980 calls are likely to be more profitable.

*The November 1000 calls closed 4.95 per cent higher at Rs 13, with volumes amounting to 294 contracts.

*The open interest in the 1000 calls at 1306 contracts is the highest among all the index options. Notwithstanding this, volumes and the open interest have dropped significantly in the last two days.

*The November 940 calls closed 13.50 per cent higher at Rs 45.20, with volumes amounting to 53 contracts. The 940 puts closed at Rs 7.95, with volumes amounting to 94 contracts.

Single-stock options: In this segment, options on Reliance Industries, Digital GlobalSoft, Satyam and ITC were actively traded. Here are some of the trading highlights in this segment:

*The November 260 calls in Reliance closed seven per cent higher at Rs 12, with volumes amounting to 317 contracts. The Reliance 260 puts also closed at Rs 12 with volumes amounting to 98 contracts.

*The Reliance 260 calls are currently at-the-money and the probability of the calls ending in-the-money is 0.52.

*The Digital November 300 calls rose 102 per cent to close at Rs 41.50, with volumes amounting to 276 contracts.

*Based on the current premium, the probability of the call ending in-the-money is 0.70. The gamma points are, however, low, suggesting that the option dealers may not profit significantly from the upmove in the underlying.

*The November ITC 720 calls closed 196 per cent higher at Rs 42, with volumes amounting to 178 contracts. Based on an option valuation model, the 720 put appears somewhat overpriced at Rs 35.

Futures:All the index futures contracts closed with negative cost of carry. That the futures contracts gained lower than the spot suggests that the dealers are not taking an optimistic view on the market.

*The November futures closed 19 points higher at 980.10. The sharp rise in volumes in the last two days suggests smart money moving into the contract.

*The December contract closed 16 points higher at 977, while the January contract closed 18 points higher at 980.