Options Daily 30.06.2015

Summary: Jul NIFTY 8600 calls added 421,050 contracts while 8000 calls shed 141,900. On the Put side of the equation, the 8000 strike added 787,525 while the 8400’s shed 164,950.

Our trend model indicates a LONG on the NIFTY and LONG on the BANKNIFTY.

JUL NIFTY OI

JUL NIFTY OI chart

JUL BANKNIFTY OI

JUL BANKNIFTY OI chart

JUL NIFTY Volatility

JUL NIFTY Volatility chart

JUL BANKNIFTY Volatility

JUL BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

Options Daily 29.06.2015

Summary: Jul NIFTY 8700 calls added 645,900 contracts while 7800 calls shed 69,650. On the Put side of the equation, the 7800 strike added 595,150 while the 7600’s shed 38,050.

Our trend model indicates a LONG on the NIFTY and LONG on the BANKNIFTY.

JUL NIFTY OI

JUL NIFTY OI chart

JUL BANKNIFTY OI

JUL BANKNIFTY OI chart

JUL NIFTY Volatility

JUL NIFTY Volatility chart

JUL BANKNIFTY Volatility

JUL BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

Opening Bell 29.06.2015

Your world at 9am

world.2015-06-29

Equities

Major
DAX(DEU) +0.17%
CAC(FRA) +0.35%
UKX(GBR) -0.79%
NKY(JPN) -1.78%
SPX(USA) -0.04%
MINTs
JCI(IDN) -0.99%
INMEX(MEX) +0.48%
NGSEINDX(NGA) -0.81%
XU030(TUR) +0.28%
BRICS
IBOV(BRA) +1.58%
SHCOMP(CHN) -2.08%
NIFTY(IND) -0.20%
INDEXCF(RUS) +0.76%
TOP40(ZAF) -0.43%

Commodities

Energy
Brent Crude Oil -1.31%
Ethanol +1.15%
Natural Gas -1.01%
WTI Crude Oil -1.49%
Heating Oil -0.88%
RBOB Gasoline -1.07%
Metals
Gold 100oz +0.65%
Copper -0.13%
Platinum -0.19%
Palladium -0.36%
Silver 5000oz +0.60%

Currencies

USDEUR:+1.40% USDJPY:-0.76%

MINTs
USDIDR(IDN) +0.30%
USDMXN(MEX) +0.38%
USDNGN(NGA) -0.08%
USDTRY(TUR) +1.04%
BRICS
USDBRL(BRA) +0.06%
USDCNY(CHN) +0.00%
USDINR(IND) +0.03%
USDRUB(RUS) +0.81%
USDZAR(ZAF) +0.74%
Agricultural
Coffee (Robusta) +0.00%
Corn +1.04%
Feeder Cattle -0.86%
Orange Juice -1.82%
Soybean Meal +0.21%
Lean Hogs +1.00%
Lumber +0.10%
Sugar #11 +0.43%
Wheat +1.33%
White Sugar +0.00%
Cattle -0.74%
Cocoa +0.00%
Coffee (Arabica) -1.39%
Cotton +0.00%
Soybeans +0.40%

Credit Indices

Index Change
Markit CDX EM -0.01%
Markit CDX NA HY +0.00%
Markit CDX NA IG +0.08%
Markit iTraxx Asia ex-Japan IG -0.40%
Markit iTraxx Australia +1.27%
Markit iTraxx Europe -0.85%
Markit iTraxx Europe Crossover -4.52%
Markit iTraxx Japan +1.24%
Markit iTraxx SovX Western Europe -0.61%
Markit LCDX (Loan CDS) +0.02%
Markit MCDX (Municipal CDS) +0.49%
So Greece just blew up. Will it take down the rest of world financial markets with it? We are probably in for a few days of volatility but this too shall pass. Meanwhile, if you have some spare change lying around, it maybe time to get into Euro stocks. See how here. Buy the dip!

Must reads

Everything you wanted to know about Greece:

  • Historical perspective. (TRB)
  • How did it happen? (FT)
  • What next? (FT)

Smart cities FTW! (MidDay)

Government plans to set up Rs 500-cr VC fund for pharma industry. Another scam in the making? (NDTV, #private equity)

While the idea of a rules-based regime is new, the mindset of the nation, especially among the ruling elite, favours exception. The next 60 years of India will be deeply influenced by whether it is able to successfully implement a rules-based regime. (LiveMint)

Good luck!

Stop-loss and Re-entry

Introduction

A trailing stop is a percentage below the most recent high at which you exit a trade. It allows you to lock-in gains while avoiding catastrophic loss. There are lot of opinions about where these should be set. And more importantly, when to re-enter. What follows is a discussion on how different stops and re-entry rules affect trading frequency and returns.

We will consider time-series from 2010 through now on the NIFTY, BANK NIFTY and CNX MIDCAP indices. During this time, the cumulative buy-and-hold returns were 61.47%, 104.81% and 75.61% respectively.

A simple 5-3 Rule

“A good plan violently executed now is better than a perfect plan executed next week.”
– George S. Patton

To get us started, we propose a trailing-stop loss at 5% and a re-entry rule that triggers when the index covers 3% from the lowest level since exiting the trade. This rule significantly increases returns and reduces draw-downs across all indices.

nifty.stop-loss.2010.5.3

bank-nifty.stop-loss.2010.5.3

mid-cap.stop-loss.2010.5.3

Index #trades cum. returns
Nifty 139 366%
Bank Nifty 209 2291%
Midcap 159 382%
The boost in returns come at additional trading costs. And even though the average number of trades work out to less than one a week, there maybe periods where it might trigger every day.

The 5-3 Trading frequency

Let’s plot the days on which this rule triggers (both buys and sells.)

nifty.stop-loss.trades

bank-nifty.stop-loss.trades

mid-cap.stop-loss.trades

By the looks of it, the stop-loss and re-entry bands are too narrow.

The 10-5 Rule

Suppose we set the trailing-stop loss at 10% and re-enter when the index covers 5%, we end up with a strategy with lower number of trades and yet, better returns and buy-and-hold.

Index #trades cum. returns
Nifty 50 100%
Bank Nifty 103 536%
Midcap 66 162%
Lower trading but lower returns as well.

Returns:
nifty.stop-loss.2010.10.5

bank-nifty.stop-loss.2010.10.5

mid-cap.stop-loss.2010.10.5

Trading Events:

nifty.stop-loss.trades.10-5

bank-nifty.stop-loss.trades.10-5

cnx-midcap.stop-loss.trades.10-5

Trailing stop-loss and re-entry scenarios

The master list of different strategies, their trading frequencies and cumulative returns.

trailing stop-loss and re-entry scenarios

Conclusion

Having a trailing stop-loss and re-entry strategy enhances returns but at the price of increased trading frequency. No combination of strategies can escape the doldrums – where the index is basically flat and you are getting whipsawed.

With a 15% tax on short-term gains, over the 5-year period, you should handicap strategy returns by 75% to do an apples-to-apples comparison on the tax-free buy-and-hold returns. If you use the 10-5 rule, it means you will only come-out ahead trading the Bank Nifty. So you are better off with the 5-3 rule given where trading costs stand.

Weekly Recap: Workcation vs. Post-Work

world.2015-06-19.2015-06-26

Equities

Major
DAX(DEU) +4.10%
CAC(FRA) +5.06%
UKX(GBR) +0.64%
NKY(JPN) +2.64%
SPX(USA) -0.64%
MINTs
JCI(IDN) -1.24%
INMEX(MEX) +0.72%
NGSEINDX(NGA) -1.22%
XU030(TUR) +1.24%
BRICS
IBOV(BRA) +0.80%
SHCOMP(CHN) -6.37%
NIFTY(IND) +1.90%
INDEXCF(RUS) -1.12%
TOP40(ZAF) +1.91%

Commodities

Energy
Brent Crude Oil +0.09%
Natural Gas -1.49%
Ethanol +6.91%
RBOB Gasoline -0.81%
Heating Oil -0.54%
WTI Crude Oil -0.12%
Metals
Gold 100oz -2.46%
Silver 5000oz -2.48%
Copper +2.32%
Palladium -3.99%
Platinum -0.14%

Currencies

USDEUR:+1.72% USDJPY:+1.04%

MINTs
USDIDR(IDN) -0.18%
USDMXN(MEX) +1.53%
USDNGN(NGA) +0.03%
USDTRY(TUR) -1.32%
BRICS
USDBRL(BRA) +1.09%
USDCNY(CHN) +0.00%
USDINR(IND) +0.13%
USDRUB(RUS) +1.40%
USDZAR(ZAF) +0.35%
Agricultural
Cattle -2.18%
Cocoa +2.03%
Coffee (Arabica) +4.49%
Corn +8.84%
Lean Hogs -0.33%
Lumber -2.14%
Soybean Meal +5.26%
Soybeans +3.09%
Wheat +14.64%
White Sugar +3.04%
Coffee (Robusta) +2.71%
Cotton +5.93%
Feeder Cattle -2.65%
Orange Juice -1.33%
Sugar #11 +4.05%

Credit Indices

Index Change
Markit CDX EM +0.20%
Markit CDX NA HY +0.37%
Markit CDX NA IG -1.17%
Markit iTraxx Asia ex-Japan IG -3.62%
Markit iTraxx Australia -5.28%
Markit iTraxx Europe -8.32%
Markit iTraxx Europe Crossover -40.54%
Markit iTraxx Japan -6.79%
Markit iTraxx SovX Western Europe -3.42%
Markit LCDX (Loan CDS) -0.02%
Markit MCDX (Municipal CDS) -0.92%
Alexis Tsipras want the Greek to decided if they want to accept the bailout terms set by the creditors. Referendum is set on the 5th of July. What will happen if they reject it?

Nifty Heatmap

CNX NIFTY.2015-06-19.2015-06-26

Index Returns

For a deeper dive into indices, check out our weekly Index Update.
index.performance.2015-06-19.2015-06-26

Sector Performance

sector performance.2015-06-19.2015-06-26

Market Cap Decile Performance

Decile Mkt. Cap. Adv/Decl
1 -1.35% 62/69
2 +4.31% 70/60
3 +2.18% 69/61
4 +3.60% 70/61
5 +3.14% 70/59
6 +2.60% 74/56
7 +2.74% 69/62
8 +2.48% 64/66
9 +1.59% 62/68
10 +2.66% 72/59
Rally ho!

Top Winners and Losers

UNIONBANK +6.94%
UPL +7.20%
BAJAJHLDNG +8.33%
INFRATEL -6.49%
TECHM -4.11%
CANBK -4.10%
Is Infratel going to feel the heat of Airtel’s OneWeb investment?

ETF Performance

BANKBEES +2.86%
PSUBNKBEES +2.17%
NIFTYBEES +1.94%
INFRABEES +1.67%
JUNIORBEES +1.11%
CPSEETF +0.92%
GOLDBEES -1.48%
PSU banks: caught between dilution and survival.

Yield Curve

yield Curve.2015-06-19.2015-06-26

Bond Indices

Sub Index Change in YTM Total Return(%)
GSEC TB -0.20 +0.20%
GSEC SUB 1-3 -0.16 +0.60%
GSEC SUB 3-8 -0.22 +1.25%
GSEC SUB 8 -0.24 +2.11%
Rally on the long-end…

Investment Theme Performance

Equity Mutual Funds

Bond Mutual Funds

Thought for the weekend

Technology is on track to permanently replace a great deal of human work. No job is truly safe. Cultural destruction goes hand-in-hand with job destruction. The expectation that work will be a central feature of adult life is going to dissipate for a significant portion of society.

However, while we wait for this future, a small but growing number of workers are instead petitioning the boss to combine work and vacation: time away from the office that includes a few days working from an exotic locale.

Sources:
A World Without Work
This Summer, How About a Workcation?