Watch out! Huge shorts got rolled in mid-cap counters for July series

The two-thirds of the stocks from derivatives segment saw decent selling pressure in June series, which does not bode well for the bulls.

The June series started with a good amount of long positions and recorded a new all-time high of 12,103 in initial days of June expiry. But, the bulls failed to hold Nifty above 12,000 marks as we witnessed some selling pressure from higher levels.

However, the index managed to sustain above the upper-end of the gap area, which was formed on the Exit Poll result day and showed some strength in the last week of the June series.

The Nifty50 remained in a broader range of 480 points in June series and, eventually, concluded the month with marginal loss over its May series close.

In the June series, we have not seen any significant activity on the open interest front. However, some of the long positions got carried forward to the July series as rollovers in Nifty stood at 80.35 percent, which is much higher than its quarterly average of 73.35 percent.

But, the open interest remained flat on an expiry-on-expiry basis. In the June expiry, FIIs activity remained subdued in the cash market segment as they were net buyers in equities worth Rs. 502 crores only.

On the other hands, domestic institutional investors (DIIs) remained net buyers in cash market segment by Rs. 3,855 crores. The highest open interest for July’s monthly expiry is placed at 11,000 and 11,500 put and 12,000 and 12,500 call options.

Going forward, 11,500 – 11,450 would act as strong support for Nifty while the immediate resistance can be seen around 12,050 – 12,100 levels.

Since overall positions are light in Nifty, a fresh build-up in the coming few days will decide the trend for the July series.

The banking index has started correcting from the first trading session of the June series, but the fall was not supported by fresh short positions. We witnessed some long unwinding in the first fortnight of the June expiry.

However, the rally of the last few days was on the back of fresh long build-up. Some of these long positions also got rolled to the next series as rollover (80.94 percent) in BankNifty was higher than its last three month’s average of 76.38 percent.

Despite the high rollovers in percentage terms, one should not get carried away with it as this rollover figure is on a low base of total open interest.

If we look at the data from a month-on-month basis, we are seeing a reduction in open interest by 6.09 percent.

Except for some long build-up in ICICI Bank, we have not seen any noticeable long build-up in any other banking counters. On the other hand, some banking stocks like Bank of Baroda, Bank of India, IndusInd Bank and RBL Bank have seen a decent short build-up, and the same got carried forward to the next series.

Though the June series remained marginally negative for benchmark indices, we saw carnage in many mid-cap counters. The two-thirds of the stocks from derivatives segment saw decent selling pressure in the June series, which does not bode well for the bulls.

At the current juncture, we are witnessing long rollovers in stocks like Torrent Power, Power Grid, PFC, REC Ltd, Havells India, and NTPC, etc.

The stocks which added huge shorts in the June series but got rolled to the coming month are GAIL, Glenmark, Ujjivan, Jindal Steel, Equitas, TVS Motor, Escorts, and L&T Finance Holdings, etc.

(The author is a Technical & Derivatives Analyst at Centrum Broking Limited.)

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