The Nifty started last week flat, opening on Monday at 3080. The December series expired on December 24, a day in advance owing to the Christmas holiday. With a lot of positions still left to be rolled, volatile sessions were expected. The markets succumbed to the pressure of long rolls in Nifty and the benchmark index slipped lower to close the day at 3039.

The Nifty continued its downward trend as long rolls intensified, and the
index finally settled for the expiry at 2917. Its gain for the December series was 162 points (6%). The calendar spread widened to 30 points on the day of expiry (22 points on closing basis), suggesting the long rolls.

Index pivotals like Reliance Industries, Infosys Technologies and ONGC came under pressure on the last day of the December expiry, resulting in lower closing for the Nifty on that day.

The rollovers on a stocks basis were below average of the last two months. Cement stocks were an exception โ€” these witnessed almost 90% of their positions getting rolled.

The first day of the January 2009 series opened on Friday with the Nifty left with only long positions. Considering the cost of rolling long positions, Nifty should have gone up as the bulls would have tried to build long positions, which they had allowed to expire (as a result of higher rollover cost).

Instead, Nifty January futures saw unwinding of positions, resulting in selling pressure. The premium for Nifty also narrowed to 4 points on an intraday basis, which was followed by delivery selling in the pivotals. Weakness was seen across the board, with stocks like ONGC, Infosys, DLF and ICICI Bank falling more than 5% on that day.

The advance tax numbers for the Q3FY09 were announced on Friday โ€” there was a 22% fall in the mop-up and this could have triggered the selling.

On the options front, Put buying was seen in the Nifty 3000 and 2800 series. The Calls writing was witnessed in the 3000 and 3100 series. This makes the trading range for Nifty very tight, between 2800 and 3000 for the initial days of the month.

The implied volatilities for the Nifty options, which had fallen below 40% during the December series, moved up by over 10-15%. This can be seen from the VIX index of NSE, which has moved up from 38% on December 19 to 45% on Friday. This can jump up to 48-50% range, which would indicate higher volatility in the market.

So even if I say that the trading range would be tighter, that would be on closing basis and intraday volatility could result in Nifty even testing the 2700 and 3100 levels on either side.

The author is head, derivatives and strategy, PINC Research