iCharts Discussions

[GHAISAS]

Respected Sir,

Can you educate me about the difference in Nifty Spot Values and Futures Values (including Minifty - as a wagging tail of Nifty) ? Normally the difference is around 20 points. With Nifty Spot going strong - the NF is pushing the difference to more than 20 points - say 20 or 24 points. In case Nifty Spot is falling weak say below 4500 - NF value comes closer to Nifty Spot - making difference of 10 points or so or even lesser.

Can anybody guide on this difference - How, When & Why? (Where - it is Nifty Spot/Fut). This may help in trading Futures - if N Spot is rising beyond particular limit - then we can quote Futures at higher differential ratio or otherwise ?

Sometimes Minifty Futures overrides Nifty Futures going well above or below Nifty Futures level - but then again follows path of Nifty Futures.

Unquestioningly Futures always follow Spot Value - but any study on it and its results would be highly appreciated. Kindest regards,

ghaisas.

[vinay28]

ghaisas, your last sentence is not exactly correct. the very reason why nifty premium or discount varies (apart from time factor) is that futures DON'T follow spot. the f&o players bet on either side based on their vision for future giving first indication of what is coming next in scrips included in nifty and the market as a whole.

[GHAISAS]

Vinay28, thanks for the precision in technical language - particularly discount and premium as well betting by the traders based on their vision of expectations of the market. Any observation or study about this variation - ratio ? kindest regards, ghaisas.

[pkholla]

ghaisas: most business papers and their analysts focus on put call ratio which can give good indication of where market is headed. You will need to get feedback from people like veeru chennai boy, rk, vinay, vinst etc how to interpret the same.
The future price can go 20-25 points away from spot if there is excess volatility in trading that day. Today 07/01, for eg, less volatility so less premium of NF over spot. Whether this premium or its ratio to future price is significant is for seniors to say. I request Veeru Chennai Boy to throw light on this point
prakash holla

[GHAISAS]

pkholla, thanks for drawing attention to another aspect of 'put-call' ratio which can give good indication of price movement. Today hardly 5 - 7 point difference between Spot & Futures involving aspect of 'volatility'. thanks for fragmenting the ice. ghiasas

[vinay28]

holla, you are right but volatility and PCR are also effects. They are again a result of betting by "players" based on their vision of the market in near (and at the most short/medium) term. I think ghaisas is more concerned about the cause? In reality, there is no single or a complete answer. Even if you ask experienced giants in the business, they will tell you how it works but they too will not be able to clarify "on what basis". This is because it is purely a effect of mass psychology of “players”. And, more importantly, these players change like in a game of cards.

To add my two bits, to the little extent that I know or understand, premium/discount is a result of that vision as well as time e.g. like options they too die as expiry approaches but not always and that is the main difference between futures and options. But in recent times I have observed a very high premium at expiry (and carried forward to the next month) only to see market go down later. Such things happen when, for the time being, market has topped out and players want to lure suckers to buy. That is part of the game they play.

Generally premium increases as bullish view gathers ground (up-trending market) and so is vice versa true for discount. But, it is important to note that, unfortunately in our market, cash volume is less than 10% of f&o volume. And as long as that continues, you will get conflicting signals. Once major investment (cash volume) begins, this % will climb and will give some semblance to the market. One should keep track of it.

Ghaisas, you did not ask about options. But Let me explain. They are like (not exactly) mini-futures. Players, when in doubt, hedge futures with options e.g. they will buy future and sell calls. Alternately, they will only sell calls and puts.

Mininifty is a completely different ball game. It’s like buying/selling nifty (taking delivery) and is a cash transaction, like buying/selling all scrips in nifty at one time.

Hope I have not increased your confusion.

[pkholla]

Vinay: very well thought out & written msg
Ghaisas: I have been lately reading authors like Hull, Johnson, Kolb, Murphy but none has mentioned future-spot difference and its significance in forecasting. Sorry, but my opinion is, for what it is worth, you should stick to better known indicators like put-call ratio, RSI, MACD, advance decline, etc or charts like NF daily candlestick chart available in icharts/charts to understand what's in future for NF.
I will happily apologize if you/others prove me wrong.
Warm regards, Prakash Holla

[GHAISAS]

Vinay28, thanks for your observation on 'mass psychology and players changing like the game of cards' and also birds eye-view of how Hedging as well other trading games are played. CONFUSION ? Yes - But I will surely take it as areas of learning. THANKS FOR THE "NEW AVENUES" DARSHAN. The kindling of fire is important. Thanks again.

[GHAISAS]

pkholla, thanks for your guidance. I was typing msg for vinay when your msg occurred. I just read it. Contents of your message noted seriously. I will study the suggestions. Thanks again. ghaisas.

[vinay28]

pl read mininifty in my post as niftybees

[rameshraja]

Ghaisas,

The difference is due to Cost of Carry and Expectation of Dividend in Nifty Stocks.

[svkum]

dear RR nice to here from you after long long time.

[GHAISAS]

rameshraja, svkum, thanks. On 12th yesterday, Nifty Spot opened 4840/95 white Fut at 4848 with difference of 8 / 9 points. Spot Closed at 4831.25 while Fut closed at 4852.20 with a difference of more than 20 points. Can we predict some thing out of this ? Or is it waste of time studying this ? Particularly the difference in both ?

[vinay28]

ghaisas, at 3.30 close NF was 4867+. averaged price was 4852+.