Author: shyam

Weekly Recap: The fallacy of inept bad guys

Nifty performance

The Nifty ended the week -2.98% (-2.30% in USD terms.) Banks took much of the heat.

Index Performance

index performance

Top Winners and Losers

ZEEL +6.59%
ASHOKLEY +6.74%
APOLLOHOSP +9.39%
YESBANK -14.45%
DLF -12.97%
BANKINDIA -11.42%
Yesbank continued its roller-coaster ride…

ETFs

INFRABEES +2.50%
JUNIORBEES -0.08%
GOLDBEES -0.44%
NIFTYBEES -2.79%
PSUBNKBEES -5.90%
BANKBEES -6.64%
Is infrastructure finally turning the corner or is this a dead-cat bounce after tumbling last week?

Advancers and Decliners

advance decline ratio

Yield Curve

Long term rates ended higher – it looks like the market is pricing in 50bps rate hike?

yield curve

Interbank Rates

The rates that banks charge each other has come down over the last 30 days. Does it mean that the liquidity crunch is nearing an end?

interbank rates

Sector Performance

sector performance

Thought for the Weekend

It means assuming the opposition is a legitimate threat until they prove otherwise, rather than assuming that they’re incompetent. Most of all, it means abandoning the belief that we deserve to win, and instead believing we have to earn all of our victories the hard way.

Source: The fallacy of inept bad guys

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USDINR – Does a Long Call Condor make sense?

The Avg. True Range of USDINR is 1.06 with volatility coming in at 0.24. An October 62.0/62.5/63.0/63.5 Long Call Condor will allow you to bet on the Rupee staying within a range.

USDINR Long Call Condor

The market value is coming in at Rs. -155.00 but as you can see from the payoff diagram, the max profit is upwards of Rs. 500.

The Rupee will move if Rajan or Chidambaram announce something about controlling CAD or tinkering with the rates. Is Rs. 155 enough compensation for the Rajan risk?

 

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Weekly Recap: The Market for Lemons

nifty weekly performance heatmap

Nifty ended the week +2.76% (INR) +5.31% (USD) as both the markets and INR rallied on the back of the non-taper announcement from the US Fed.

Index Performance

Realty took a hit yesterday on the back of RBI’s 25bps rate hike (previously: here)

indexperf.2013-09-13.2013-09-20

Top winners and losers

SRTRANSFIN +13.54%
JSWSTEEL +17.30%
YESBANK +26.62%
RANBAXY -26.98%
GSKCONS -7.04%
BHEL -5.15%
All over the place, as the market tries to make up its mind…

ETFs

BANKBEES +5.05%
JUNIORBEES +3.13%
PSUBNKBEES +2.83%
NIFTYBEES +2.81%
GOLDBEES +1.58%
INFRABEES -4.55%
Banks rallied on the back of “no-taper” but are likely to give up most of their gains as RBI’s tightening stance sinks in…

Advancers and Decliners

adline2.2013-09-13.2013-09-20

Yield Curve

What exactly did the RBI do? Short term-yields have actually come down in spite of the 25bps increase in repo-rate. Ajay Shah tries to explain the head-scratcher here: The RBI has just intensified the muddle.

yieldCurve.2013-09-13.2013-09-20

Sector Performance

sectorperf.2013-09-13.2013-09-20

Thought for the weekend

Markets characterized by asymmetric information between sellers and buyers commonly resulted in declining quality of products offered for sale. In a market where the quality of products for sale is difficult to determine (such as used cars), if the majority of offerings are low quality “lemons,” buyers will come to distrust sellers and drive the average transaction price down to the “lemon price.” In this environment, the sellers of high quality used cars will only be offered lemon prices, since buyers can’t tell the difference. And since lemon prices are below the true value of the high quality vehicles, the sellers of good used cars will choose not to sell, eventually resulting in a market with only lemons being offered for sale.

Source: The market for idiocy

Ginormous USDINR chart

e385268aacd8409fa1847a6a47595868635153561016570285

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USDINR Implied Vol vs. Realized Vol

Does implied volatility contain incremental information about future volatility? At least according to this paper, it does.

Here’s a chart that plots USDINR option implied volatility (nearest at the money) vs. futures (nearest expiry). It does appear that IV leads realized vol, but it would be interesting to see if there’s any trading edge here…

USDINR Option Implied Vol and Futures Realized Vol

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USDINR – Time to sell Volatility?

USDINR Volatility

Foreign banks are offering upfront financing for wealthy non-resident Indians (NRIs) of 90% to set up dollar deposits in India following various central bank incentives, including cheap dollar/rupee swap rates and more relaxed terms on 3-5 year dollar deposits. We should see the vol collapse in the next few days. Is it time to sell USDINR volatility?

Source: Reuters

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