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14 securities under ban period:

Yatheendradas C.k. at 08:53 AM - Jul 25, 2017 ( ) Views: 291

Jul 25, 2017 08:36 AM IST | Source: Moneycontrol.com

14 securities under ban period: does it reminds of market scenario in 2007-08 peak?

Back in the 2007 rally, total stocks in F&O were close to 230. During that period, the ratio of stocks in the ban to the total F&O stocks was seen even more than 10 percent which is not the case in the year 2017.

Kshitij Anand   Moneycontrol News

The recent sharp run-up in the Nifty50 from the lows of 7,900 witnessed in December 2016 to 9,900 in July 2017 left many traders on the sidelines. But, to take advantage of the liquidity in the markets many traders have built positions in various stock futures and options positions up to the maximum point.

The number of stock contracts in the equity derivatives segment which cannot be traded further till some of the positions are liquidated currently stands at 14 as of July 25 which is still not close to the euphoria which we saw back in 2007-08’ peak.

Back in the 2007 rally, total stocks in F&O were close to 230. During that period, the ratio of stocks in the ban to the total F&O stocks was seen even more than 10 percent which is not the case in the year 2017.

 

“Currently the ratio of stocks in the ban to the total F&O stocks is close to 6 percent. With the Nifty coming out of the last couple of years of consolidation and midcap performance getting investors’ confidence, more leverage is taken by the market participants particularly in high Beta stocks,” Amit Gupta, head of derivatives at ICICIdirect told Moneycontrol.

Investors should not be nervous about the recent sharp rise in securities under the ban period, suggest experts. Security in ban period for the next trade date under the F&O segment includes companies in which the security has crossed 95% of the market-wide position limit.

“Exchange has criteria to ban securities when its derivative contracts cross 95% of the market wide position limit indicating exceeding all combined open interest in all the options and futures contract for all the months of consideration,” Arpit Jain, AVP at Arihant Capital Markets Limited told Moneycontrol.

“But right now, it does not signal anything critical for investors considering the fact that VIX in the year 2007-2008 was 70-75 but right now it is 11 only. Also, current put call ratio is 1.01 only,” he said.

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Now, till the time the aggregate open interest across exchanges comes down to 80 percent or below of the market-wide position limit, normal trading in the stock can’t be resumed.

These are temporary bans which get lifted once the market wide position gets reduced to 80-85 percent. For permanent ban, there are other criteria’s followed by an exchange like liquidity, market cap, etc.

Many stocks have given up to 200 percent return (Indiabulls Real Estate and JP Associates) so far in the year 2017 and almost 11 out of 14 stocks have given high double digit returns makes them more vulnerable to a fall.

“As more and more stocks coming in BAN would point towards higher leverage tendency in the market. In intermediate market profit booking, these stocks are more vulnerable to fall.

One interesting point is increased activity in options segment in certain stocks,” said Gupta of ICICIDirect.

He further added that Option traders generally are quite active in these stocks with higher lot sizes and high Beta nature as a small move in stocks fetch them profits. “If the positions are taken for short-term gains however it may be equally disastrous also when the expected move doesn’t come,” he said.


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