Total Average Turnover in derivatives market on NSE in last four sessions stood at Rs 4.9 lakh crore against Rs 10 lakh crore average for the month of May. (Photographer: Dhiraj Singh/Bloomberg)

How Derivatives Market Is Stacked Ahead Of 2019 Election Results 

The recent rally in Indian equities has not been supported by the derivatives market, according to data available on National Stock Exchange of India.

NSE’s benchmark Nifty 50 index is up 580 points, or 5 percent, since the rally began on May 16. But the move is based on muted derivative average turnover in the last four sessions ahead of the crucial Lok Sabha election results.

Traders have been waiting on the sidelines to take fresh positions. According to NSE data, total average turnover in the derivatives market on NSE in the last four sessions stood at Rs 4.9 lakh crore against Rs 10 lakh crore average for the month of May.

So far in May, Nifty is up 0.8 percent while the Bank Nifty has risen 3.3 percent. Both Nifty and Bank Nifty touched their record highs in May Series. Nifty 50 Index is now 145 points and Bank Nifty Index is 400 points away from their all-time highs seen on May 21.

There has been lack of participation on the index as open interest on Nifty Futures has fallen from the start of the series, indicating unwinding of existing positions.

A day ahead of election results, on May 22, the open interest on both Nifty and Bank Nifty Futures went up by 6 percent and 3 percent, respectively. Nifty managed to hold its previous day’s low and traded in the 11,680-11,780 range, closing with gains of 28.8 points, or 0.25 percent. Bank Nifty outperformed, ending the day 0.7 percent higher.

Volatility VIX

India Volatility index closed 7.7 percent higher on Wednesday and is up 19 percent so far in May after rising 40 percent in April. VIX hit a recent high of 30.18 on May 22, the highest level seen since September 2015. There could be volatile swings in the market owing to higher VIX but sharp cuts cannot be ruled out after election results.

Nifty Options

Alongside election results, Nifty and Bank Nifty weekly options will also expire on May 23. The maximum open interest on call side for May 23 weekly expiry is at 12,500 followed by 12,000 strike, while maximum open interest on put side is at 11,000 followed by 11,500.

Options band is giving a wide range of 11,000 to 12,000. On May 22, deep out of the money call options like 12,500 and 12,400 strikes saw writing while on the put side maximum addition was seen at 11,000 strike.

FPI Activity

Foreign investors have cut long positions in Index Futures and added shorts since start of series.

How Positions Changed Post Exit Poll

Equities saw a sharp rally after Sunday’s exit polls, but foreign investors have remained cautious. On Index Futures side, both long and short contracts were added this week while on the Index Options front more of bearish bets were seen by buying more of Puts and selling Calls.

What experts are saying:

Chandan Taparia of Motilal Oswal

  • Nifty At The Money (ATM) May Monthly expiry straddle (10,700 Call and 10,700 Put strike is quoting near to 550-600 points which means that participants are already discounting the movement of 550-600 points in the market.
  • As of now not much significant OI concentration seen in weekly expiry as participants are taking bet on option strategy rather than writing deep out of the money option which they do on every weekly expiry.

Hemen Kapadia of KR Choksey

  • The market is expected to remain rangebound in a rather large range between 11,000-12,200.
  • VIX is elevated and is expected to climb higher on May 23.
  • The post exit-poll hap between 11,591 and 11,426 is expected to get covered up while there isn’t a directional bias at the moment.
  • There was a 34 percent short build up the day before which has marginally reduced indicating a negative bias for IT.

Ashish Chaturmohta of Sanctum Wealth

  • It’s going to be volatile as can be seen by a huge build up of positions in deep out of the money options.
  • Huge swings can be expected.
  • On the downside important level to watch out would be 11,300-11,200 zone
  • Bias looks positive; can see 12,200 zone in the short term.