Oct series to expire around 5,640 levels: ICICI Direct

In an interview to CNBC-TV18 Amit Gupta, head- derivatives -ICICI Direct said the October F&O series would likely expire in line with the September series. "The September expired at 5,640 levels; I don't see the expiry today very far from this level.  It should be around this level only," he added.

However, he cautioned that long liquidation may happen in few sectors like banking or oil and gas today. Going ahead, 5,550 would be a crucial support for the Nifty in the November series. Below is an edited transcript of Amit Gupta's interview on CNBC-TV18.

Q: What note do you expect to see the expiry on today?
A: The last September we had the expiry of 5640. Market has respected this level throughout the series. Whenever it has gone down below this, it has immediately recovered. I don’t see the expiry today very far from this level. It should be around this level only.
In fact I am worried about open interest because in the last seven sessions it has increased by almost 18%. From Rs 180 crore shares it has increased to Rs 210 crore shares. Now, that means the traders are not very skeptical at this point, slowly eventually they have come up and they are taking leverage in the market and that is also indicated by the implied volatility which has gone down very low.
If you look at India VIX, it is trading close to 13 and it has gone down very sharply in September. It is not now trading at sub 13 levels from19 levels. So, both of these indicators suggest that the traders are taking the positions in the market and this is where 5730 has remained in futures series and has not been taken out so far. So, in that scenario there maybe some long liquidation in the stocks.
If you look at particular sectors we see that in banking space also some positions have been taken in the midcap space. And also, in other sectors for example oil and gas where positions were taken in the mid of the series. So, long liquidation may start happening.
We need to be a little cautious today. If we look at the index options 5600 put has remained the highest put base in the last month and this month. In fact in the November series we are seeing 5600 put is the highest. This is where 5600 has not been taken out. November series auction 5600 put is trading at a premium of Rs 50 so 5550 in November is going to be a crucial support in the coming sessions. Q: Which stocks could be under pressure today from the list of stocks you spoke about? Can you see some expiry related pressures?
A: If you look at the total open interest in the stocks, still more than 60% of open interest is left in certain stocks. Out of this, three stocks one is PFC, the other is ABB and the third is Zee Limited. PFC and ABB are the possible candidates for some swap selling today because forward arbitrage positions were formed in these stocks. These stocks were trading more than 80 bps of premium.
The futures were trading at a premium vis-à-vis the spot consistently more than 80 bps. Forward arbitrage positions were formed in these stocks and where the arbitragers would have gone long in cash and they shorted in futures. When they do this on the expiry, the rollovers are not happening now and the open interest is also quite hefty, the rollover is only 35%. So the arbitragers are not rolling the positions despite the favorable roll cost which is positive and the future positions are in the short side. So if they are not rolling the positions it may lead to some kind of selling today in both the stocks.
PFC has breached the trendline which it was following since June. Below Rs 195 the stock may remain under pressure. It may even hit Rs 185. If you look at ABB Limited, it has remained under pressure around Rs 770-780 kind of levels. It is slowly giving up and may come down to Rs730-735.
On the contrary Zee Limited may witness some short covering because more than 60% of the open interest is left in this stock. If you look at the move in the underlying, it is moved from Rs 163 to Rs 205 and still it is trading more than 16% of returns around Rs 192-191 kind of levels. I feel the shorts have clearly stuck up.
The rollovers are very low, only 38% which makes these stocks unwilling to roll the positions to the next series. There is a possibility of another round of short covering in the stock today. The decline towards Rs 187 is a good support and can be utilized to go long for a target of 198-199.
Q3: Is Apollo Tyres another trading call for you?
A: Yes, because in the last few sessions we have seen some buying in the tyres space. It had seen some long liquidation before. Apollo Tyres movement in the last two or three months, moved up from Rs 78 to Rs 105. It then gave up almost 60-70% of the move and now it is trading at a very important retracement level of the whole move at around Rs 185 to Rs 186 levels.
The open interest from the month of February is one of the highest in this month. In fact in the month of October it surges by almost 52%. There has been a lot of shorting in the stock that tool place from Rs 105 to Rs 85 but since it has come down to a good level there maybe a scenario of some short covering coming up.
Rs 80-84 is the range where the cash buying happens in the stock. So far there has not been much cash buying but may start happening very soon in the stock. So, one can buy the stock for one or two months perspective and, I think it can give you some good money.

Q: What are you seeing on the L&T counter in the futures market?
A: Recently quite aggressive longs have been formed in the stock. It has remained an outperformer. Rs 1570 was the breakout level in the starting of the month and close to Rs1730-50, the stock may find some resistance. It may go into some long liquidation, come back to Rs 1640 and then again you should start buying this stock. It should also remain an outperformer in the months to come. Q: How is the Bank Nifty going in November?
A: It is the clear replica of Nifty. Nifty 5700 short struggles were seen. Similarly in Bank Nifty whether it is October or the coming November 11500 short struggles are formed and this is where both the indices have remained in the range. I think 11300-11250 is going to be the major support area now for Bank Nifty November and 11700-11750 will be post some resistance. So, it will keep on trading in this range for the time being. Q: Do you think the run is done for cement?
A: No. This particular pack has moved up on the back of short covering as the traders have been able to digest the movement in the cement pack. Even we have been getting a lot of calls, when the stock like ACC or Ambuja go to higher levels valuation wise. When these stocks don’t look attractive, why not short the stock? But this is where the traders are forming the shorts in both of these stocks. Ambuja Rs 205-208 was the range in which again the traders shorted the stock. But it is not going below Rs 185-190 kind of levels easily. So you will see, after a bit of consolidation short covering coming back and so it is going to be the outperformer for me.