Stocks Closed for Fresh F&O Bets at Highest Since Sept
As many as nine stock futures have been barred, which market watchers say points to over-optimism among traders in the mid-cap space
Mumbai: The sharp rebound in the stock market of late may have made traders complacent, encouraging them to build up positions in various stock derivative contracts to their highest permissible limit.
The number of stock futures and options in which further bets cannot be mounted is near their record levels in September last year. Usually, when higher number of stocks is moved into the trading ban list, some market watchers consider this as a contrarian indicator.
As many as nine stock futures cannot be traded further till some of the positions are liquidated. The stocks under ban in futures and options for Monday include Ceat, Housing Development and Infrastructure, Indiabulls Real Estate, IFCI, Jet Airways, Jindal Steel and Power, Union Bank of India and Jaiprakash Associates.
A stock goes under ban in futures and options (F&O) segment when combined open interest in its derivative contracts crosses 95% of the market-wide position limit. The normal trading in the stock is resumed only after the aggregate open interest across exchanges drops to 80% or below of the market wide position limit.
In September, as many as 12 stocks came under ban on particular days — the highest since 2007-08, the peak of the previous bull run.
“It indicates that trading sentiments are high, people are very comfortable taking positions and are over-optimistic in the mid-cap space,” said Ashish Chaturmohta, head-technicals and derivatives at Sanctum Wealth Management. The BSE MidCap index has surged 11.6% so far this year to 13,422.89 points compared to the benchmark Sensex which has gained 8.4%.
Derivative analysts said the in- creased number of stocks under ban could also be partly due to high lot sizes. The rise in number of stocks under trading ban and the decline in the Volatility Index (VIX) — a measure of traders’ expectations of near-term risks in the market based on Nifty options premium values — are pointing to a rise in complacency among traders. VIX has drifted lower to 13.43 in recent weeks. The measure had hit 12.75 in September — its lowest levels since December 2014.
While the number of stock derivative contracts under trading ban are near their highs, activity of the retail investor segment in futures and options is still low, said brokers. “Given strong liquidity conditions, all factors pointing to a blow-out top are not in place yet,” said S Hariharan, head of sales trading at Emkay Global. “The retail segment single stock futures long interest at about $5.5 billion is still relatively low compared to typical highs of $7.7 billion.”