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Positive trend in Reliance Petro

B. Venkatesh

THURSDAY'S trading in the derivatives segment saw good demand for out-of-the-money calls on the index and individual stocks. Here are some of the pointers from the day's trading:

Single-stock options: Reliance Petroleum, Sterlite, Satyam, ACC and Digital GlobalSoft were among the actively traded options in this segment. The December 35 calls on Reliance Petro closed at Rs 2.75, with volumes amounting to 314 contracts. The open in terest in the calls stands at 1,221 contracts.

Good demand for at-the-money (ATM) and out-of-the-money (OTM) calls indicates positive outlook on Reliance Petro. The open interest in the December 40 OTM calls is 498 contracts, the second highest on the stock.

Besides, the put-call ratio on the December 35 calls have fallen sharply in recent times, which suggests that the dealers do not consider the puts profitable.

Dealers wanting to take position in December calls may consider buying the OTM 40 calls, which is currently trading at Rs 1.30. There is, however, only a one-third probability of the option ending ITM. The time decay in the case of the December 40 calls is also lower than in the case of the 35 calls.

The implied volatility on the December 40 calls on Reliance Petro is, however, higher than the historical volatility on the stock. This means that the call option may be somewhat overpriced at the current levels.

The December 160 calls on Sterlite closed at Rs 14.35, with volumes amounting to 115 contracts. The open interest in the calls currently stands at 149 contracts. The volumes in the single-stock futures segment have also been rising, indicating market int erest in the stock.

Dealers wanting to take profit from the upmove in the option premium due to the movement in the underlying can look at the December 170 calls, which have the highest gamma points. The probability of the calls ending ITM is, however, only 0.43. Another fa ctor worth noting is the increase in trading volumes and open interest in the single-stock futures segment.

Index options:

Trading in the December contracts gathered momentum, what with the November contracts expiring on Thursday.

The December 1,100 calls on Nifty closed Re 0.25 lower at Rs 12, with volumes amounting to 117 contracts. The open interest in the calls currently stands at 128 contracts.

The December 1,100 calls are currently OTM by 33 points. The demand for such deep OTM calls suggests that dealers expect the market to move up from the current levels.

Another encouraging factor is the demand for 1,080 calls, which are OTM by 11 points. This positive signal need to be, however, considered with caution because trading in December contracts is yet to consolidate.

Index futures: The December contract closed 1.80 lower at 1,059, with volumes amounting to 2,546 contracts. The open interest in the contract is 3,257 contracts. The January contract closed 4 points lower at 1,057.