July 10, 2017
Derivatives Thematic:
St k with
Stocks
ith hi
highh short
h t bbuild-up
ild
– likely
lik l candidates
did t for
f
short covering amid recent FPI guidelines…
Research Analyst
Amit Gupta
Raj Deepak Singh
Azeem Ahmad
Nandish Patel
[email protected]
[email protected]
[email protected]
nandish patel@icicisecurities com
[email protected]
Stocks with high short build-up – likely candidates for short covering amid recent FPI
guidelines…
•
No major intermediate profit booking was seen in the current rally, which has caught short traders on the wrong foot.
Market participants have formed short positions in certain stocks in anticipation of profit booking. However, with
sustained upsides, it seems they could be forced to cover their short positions. We expect short closure to start in
these stocks, which can lead to good upsides in coming sessions
•
We have identified a few stocks that have accumulated noteworthy short positions since November 2016 and are
prone to witness closure of these short positions.
positions Markets were under pressure in November 2016.
2016 Since then,
then
despite the Nifty recovery, short positions are getting rolled in the given stocks. In Tata Power and Ambuja Cement,
short additions were near 60% and 80%. However, the recent short covering has seen closure of some shorts.
•
Recent Sebi guidelines for the closure of speculative derivatives positions through P-notes could lead to short
covering
g in g
given stocks
Stocks with high short build up – likely candidates for short covering…
Stocks
Idirect Code
CMP
Short additions since Nov 2016 3M avg price
Tata Motors
TATMOT
445 00
445.00
92%
450
SBI
STABAN
284.00
38%
289
Tata Power
TATPOW
82.00
13%
81
Dabur
DABIND
302.00
127%
289
Ambuja Cement
AMBCE
258.00
12%
245
Source: Bloomberg, ICICIdirect.com Research
2
Short blocks identified in stocks in futures segment…
Tata Motors
Date
Shaded portion are
shorting levels taken out
by stocks
SBI
Stock levels
Major OI Block
28-Jun-17
276.40
13836000
3049500
22-May-17
294.30
10746000
442.30
2833500
29-May-17
284.00
7434000
442.50
2898000
430.25
2505000
27-Jun-17
279.65
7245000
Stock levels
Major OI Block
4-May-17
436.00
3262500
17-May-17
449.10
27-Jun-17
28-Jun-17
3-Jul-17
Date
Dabur
Tata Power
o e
Date
Stock levels
Major OI Block
25-Apr-17
85.20
6813000
11-Apr-17
85.45
4977000
27-Jun-17
81.10
2853000
22-May-17
82.05
2466000
23-May-17
80.50
2025000
Date
Stock levels
Major OI Block
23-May-17
273.70
1792500
27-Jun-17
290.00
1527500
3-May-17
275.75
890000
26 A 17
26-Apr-17
294 05
294.05
775000
17-May-17
276.00
755000
Ambuja Cement
•
We have identified stocks where major short blocks have
been seen in the futures segment in the recent up move.
Shorts have been attempted in these stocks despite the up
move. A move above these short blocks is likely to trigger
short covering
Source: Bloomberg, ICICIdirect.com Research
Date
Stock levels
Major OI Block
24-Apr-17
246.70
2932500
28-Apr-17
245.90
1955000
2-May-17
241.80
1915000
7-Jul-17
253.45
1615000
p
25-Apr-17
246.40
1572500
Long Strategy: Buy SBI July 285 Call at | 5.2-5.7 and sell SBI July 300 Call at |1.6-2.0.
Deal
– At Frame:
Your Till
Service
Target Team
: | 300. Time
July expiry
PSU banking stocks have seen resumption of buying interest
from the start of July series. Most stocks from the space had
seen a price decline of over 15-20%. However, with most
stocks now reverting from key support levels, we recommend
SBI as it is high on short OI and has started to see closure.
40
Spread
+2 SD
-2 SD
30
25
20
15
10
The (SBI -Nifty )IV spread is currently at 13 and has started to
move higher on the call closure towards mean * 2 sigma level
of 18.3. This bodes will for the upsides in the stock.
In the options space, highest Call base of 300 is seeing traces
of short closure. Hence, we have recommended a bull spread.
5
16-Mar-17
9-Mar-17
2-Mar-17
23-Feb-17
16-Feb-17
9-Feb-17
2-Feb-17
26-Jan-17
19-Jan-17
12-Jan-17
5-Jan-17
29-Dec-16
22-Dec-16
15-Dec-16
8-Dec-16
1-Dec-16
24-Nov-16
17-Nov-16
10-Nov-16
0
Option Dashboard
SBI Bull Call Spread : Payoff
Gamma
July 285 Call
July 300 Call
Strategy
Delta
0.45
-0.18
0.270
Highest Call Base
Vega
0.25
-0.14
0.110
Highest Put Base
Gamma
0 06
0.06
0 04
0.04
0 100
0.100
4
1200
320
1180
310
1160
300
1140
290
1120
280
1100
270
1080
260
1060
250
1040
240
Note: The given recommendations are initiated on iclick-2-gain
on July 10, 2017
Source: Bloomberg
50,000
60,000
50,000
40,000
40,000
30,000
30,000
20,000
20,000
,
10,000
10,000
00
-10,000
-10,000
-20,000
-20,000
-30,000
Profit/Losss per lot
Profit/Losss per lot
Options Greeks / Strikes
20 D EMA
35
SBI - Nifty ATTM IV
The open
p
interest in the stock of over 73 million shares has a
short bias that is still prevalent. However, since the start of July
series, the OI in the stock has reduced over 5%, suggesting
commencement of short covering trend.
(SBI - Nifty) IV spread: moving higher
Positional Option: Buy Tata Motors July 450 Call at | 7.2-8.2. Target | 18. Stop Loss |
Deal
Team
– At
Your
Service
3.8. Time
Frame:
Till July
expiry
While most auto stocks have seen a strong performance in
CY18, Tata Motors has languished on the back of adverse news
CY18
flows. This had triggered creation of short positions in the
stock. The current OI of 43 million shares has almost doubled
in CY18 with the stock decline from | 550 to | 430 levels.
50
Spread
+2 SD
-2 SD
40
The (Tata Motors -Nifty) IV spread is currently at 16 and has
started to move higher on the Call closure towards mean * 2
sigma level of 26. This bodes well for a buy 450 Call strategy.
35
30
25
20
15
10
5
16-Mar-17
9-Mar-17
2-Mar-17
23-Feb-17
16-Feb-17
9-Feb-17
2-Feb-17
26-Jan-17
19-Jan-17
12-Jan-17
5-Jan-17
29-Dec-16
22-Dec-16
15-Dec-16
8-Dec-16
1-Dec-16
24-Nov-16
17-Nov-16
10-Nov-16
0
Option Dashboard
Tata Motors buy 450 Call : Payoff
Gamma
Delta
0.45
Highest Call Base
Vega
0.38
Highest Put Base
Gamma
0 07
0.07
60,000
60,000
50,000
50,000
40,000
40,000
30,000
30,000
20,000
,
20 000
20,000
10,000
10,000
0
0
-10,000
-10,000
-20,000
Profit/Losss per lot
Profit/Losss per lot
July 450 Call
Source: Bloomberg
5
1200
490
1180
480
1140
460
1120
450
1100
440
1080
430
1040
410
1060
420
-20,000
-30,000
Note: Recommendation initiated on iclick-2-gain on July 10,
2017
1160
470
Options Greek
20 D EMA
45
Tata Motors - Nifty ATTM IV
With the Nifty orbiting into a newer high trajectory, stocks with
hi h short
high
h
OI as are seeing
i
short
h
closure.
l
T
Tata
M
Motors
h
has
seen closure in OI in July series (6% closure in July series).
In terms of options build-up, the stock had seen heavy
shorting in the Call option segment, especially in Call strikes of
450 and 460, with 460 Call having the highest option base.
(Tata Motors - Nifty) IV spread: moving higher
Quant Pick: Buy Tata Power in the range of | 81-83. Target : | 98. Stop Loss: | 73
Deal
TeamThree
– AtMonths
Your Service
Time Frame:
Stocks in the power space have remained relatively
underperformers. With the Nifty moving to newer highs of
underperformers
9800, the space has seen a pick-up in price performance.
Spread
20
15
10
5
85
Highest Put Base
40000
35000
30000
25000
80
20000
75
77.58%
15000
10000
70
21.26
5000
Source: Bloomberg
6
7-Jul
166-Jun
26-May
5-May
144-Apr
244-Mar
33-Mar
100-Feb
200-Jan
300-Dec
Note: The given recommendations are initiated on iclick-2-gain
on July 10, 2017
99-Dec
0
188-Nov
65
OI in Thousands
3693084
Highest Call Base
45000
16-Mar-17
9-Mar-17
2-Mar-17
23-Feb-17
16-Feb-17
9-Feb-17
2-Feb-17
26-Jan-17
19-Jan-17
12-Jan-17
5-Jan-17
29-Dec-16
22-Dec-16
15-Dec-16
8-Dec-16
1-Dec-16
24-Nov-16
10-Nov-16
81
90
288-Oct
HV 60 Day (% Annualised)
1.07
Gamma
Open Interest
Price
77-Oct
3M Avg Roll (%)
95
83.00
166-Sep
3M Avg Volume (Shares)
Price vs. Open Interest
Price
3M Avg Price (|)
-2 SD
25
Key Stock highlight
Beta
+2 SD
0
The (Tata Power -Nifty ) IV spread is already moving higher as
the Call option buying ranging from 80 to 90 is picking up pace
since the start of the July series.
Spot Price
20 D EMA
30
17-Nov-16
However, in the futures space, the stock is high on short OI.
The current OI in the stock of over 22 million shares has been
witnessing constant short closure in the last couple of months.
The current OI still has significant shorts left that could see
closure.
35
Tata Power - Nifty ATM IV
Tata Power witnessed a pick-up in delivery volumes near the
June expiry and has been constantly trading above those price
levels.
(Tata Power - Nifty) IV spread: moving higher
60
7
11-Jun-17
11-May-17
65
11-Apr-17
70
3-Jul-17
112-Jun-17
222-May-17
1-May-17
10-Apr-17
220-Mar-17
27-Feb-17
6-Feb-17
16-Jan-17
226-Dec-16
5-Dec-16
600
11-Mar-17
75
114-Nov-16
320
11-Feb-17
80
24-Oct-16
Tata Motors : CMP | 445
11-Jan-17
85
3-Oct-16
SBI : CMP | 284
11-Dec-16
90
11-Nov-16
95
11-Oct-16
Tata Power : CMP | 83
12-Sep-16
240
222-Aug-16
260
1-Aug-16
280
11-Sep-16
200
11-Jul-16
3-Jul-17
122-Jun-17
222-May-17
1-May-17
10-Apr-17
200-Mar-17
27-Feb-17
6-Feb-17
16-Jan-17
26-Dec-16
55-Dec-16
144-Nov-16
224-Oct-16
3-Oct-16
12-Sep-16
222-Aug-16
11-Aug-16
11-Jul-16
300
11-Aug-16
11-Jul-16
3-Jul-17
12-Jun-17
22-May-17
1-May-17
10-Apr-17
20-Mar-17
27-Feb-17
6-Feb-17
16-Jan-17
26-Dec-16
5-Dec-16
14-Nov-16
24-Oct-16
3-Oct-16
12-Sep-16
22-Aug-16
1-Aug-16
11-Jul-16
Price performance of recommended stocks in trailing 12 months...
550
500
220
450
400
Dabur : CMP | 301
330
320
310
300
290
280
270
260
250
Price performance of recommended stocks in trailing 12 months...
Ambuja
j Cement : CMP | 253
300
280
260
240
220
200
8
111-Jun-17
11-May-17
11-Apr-17
111-Mar-17
11-Feb-17
11-Jan-17
11-Dec-16
111-Nov-16
11-Oct-16
11-Sep-16
111-Aug-16
11-Jul-16
180
Portfolio allocation in Derivatives Products…
•
•
•
•
•
It iis recommended
d d tto spread
d outt th
the ttrading
di corpus iin a proportionate
ti
t manner b
between
t
th
the various
i
d
derivatives
i ti
research products
Please avoid allocating the entire trading corpus to a single stock or a single product segment
Within each product segment, it is advisable to allocate equal amount to each recommendation.
For example: The ‘Daily Derivatives’ product carries two intraday recommendations. It is advisable to allocate equal
amount to each recommendation
Quant Picks recommendations should be considered in cash segment and stoploss on closing basis. Time frame for
these recommendations is 3 month.
Allocation
Products
Return Objective
Product wise Max allocation
allocation
per stock
Frontline Mid-cap
p
Number of Calls
Stocks
stocks
Duration
Daily Derivatives
5%
2-3%
2 Stocks
1%
2-3%
Intraday
Weekly Derivatives
10%
3-5%
2 Stocks
3-5%
5-7%
1 Week
Monthly Derivatives
15%
3-5%
4-7 Stocks
7-10%
10-15%
1 Month
Global Derivatives
5%
2 3%
2-3%
4 5 stocks
4-5
-
-
1 Month
Quant Picks
15%
2-3%
6-8 stocks
7-10%
10-15%
3 Months
Alpha Trader
10%
2-3%
2-3 strategy
5%
-
1-2 Month
Volatility Insights
10%
2-3%
3-4 Strategy
8-10%
10-15%
1-2 Month
Arbitrage Opportunity
5%
2-3%
2-3 Stocks
> 2.5%
>2.5%
Event Based
Short term Futures
5%
2-3%
8-12 Stocks
1-3%
2-5%
1-2 days
Positional Index Strategy
5%
3-4%
2-4 Index calls
-
-
1-14 days
Stock option strategy
5%
3-4%
2-8 Stocks
-
3-5%
1-2 days
Daily Currency Future
5%
3-4%
3-5 Calls
-
-
1-2 days
Monthly Currency Futures
5%
33-4%
4%
22-33 Calls
-
-
1 Month
9
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road no.7, MIDC
Andheri (East)
Mumbai – 400 093
research@icicidirect com
[email protected]
10
Disclaimer
ANALYST CERTIFICATION
We /I, Amit Gupta B.E, MBA (Finance), Azeem Ahmad MBA (Fin), CS, Raj Deepak Singh BE, MBA (Finance) and Nandish Patel, Research
Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock
brokering and distribution of financial products.
products ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration
Number – INH000000990.ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its
various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund
management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in
India. We and our associates might have investment banking and other business relationship with a significant percentage of companies
covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their
relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report
and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior
written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is
under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent
ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such
suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be
acting in an advisory capacity to this company, or in certain other circumstances.
The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no
independent verification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information
herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or
subscribe for securities or other financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these
recommendations. Nothing in this section constitutes investment, legal, accounting and tax advice or a representation that any investment
or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed herein may not be
suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and
p
recipient.
p
This may
y not be taken in substitution for the exercise of independent
p
jjudgment
g
by
y any
y recipient.
p
The recipient
p
needs of specific
should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates,
foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out
of the use of these recommendations. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk
Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from
those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have
been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned herein during the period preceding
twelve months from the date of these recommendations for services in respect of managing or co-managing public offerings, corporate
finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
11
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant
banking or brokerage services from the companies mentioned herein in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report.
ICICI Securities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the
report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and
y material conflict of interest at the time of p
publication of this report.
p
their relatives have any
It is confirmed that Research Analysts giving these recommendations have not received any compensation from the companies mentioned
herein in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service
transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the
company/companies mentioned herein as of the last day of the month preceding the publication of these research recommendations.
group
p companies)
p
of ICICI Securities are engaged
g g in various financial service businesses, they
y might
g have financial
Since Associates (ICICI g
interests or beneficial ownership in various companies including the subject company/companies mentioned herein.
It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies
mentioned herein.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented
herein.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein.
p
y action has been taken on ICICI Securities by
y any
y Regulatory
g
y Authority
y impacting
p
g Equity
q y Research
We submit that no material disciplinary
Analysis activities.
This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident
of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The
securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose
possession this document may come are required to inform themselves of and to observe such restriction.
12