Who is Doing What?

The current moves in the market has been leaving many of us perplexed. Markets have been moving higher despite of the activity on the ground staying pretty subdued. Any news of slightest opening up of economy or business push the markets or stocks significantly high. A large part of this upmove can be attributed to liquidity. With ~$8tn of quantitative support from USA, a rally lead by liquidity was clearly imminent.

US markets retested previous peaks, European markets were also extremely strong. Similarly, back home we recovered almost 60% of the downmove. While looking at FII and DII statistics are of importance, also, would be of great importance would be keeping a tab on derivative positions. With the share of institutional volume coming down from 50% to 30% and overall delivery volumes coming down from ~40% to ~28%, derivatives data becomes even more important. 

Let’s look at the data for each participant (Individual Traders, DIIs, FIIs and Prop traders) type in terms of contracts for 3 time stamps: Feb end before the fall, March end when the fall was worst and current positions.

Index Futures: In February end only FIIs were short in Index futures while a large part of the longs, nearly 75% were held by Individual traders. By the time Nifty hit the lows in March, both FII and Prop traders were short while DIIs and Individual traders were long. But the positions of retail trader was not even 10% of what they held in February. Right now, Individual traders are the only ones who are Long, rest all are short. But the positions are just ~30% of what it was in February.

Stock Futures: DIIs are the ones who have always been net short here due to huge arbitrage positions of theirs. FIIs, however, have stepped up their Long positions. It has doubled since February. One reason for this is due to futures slipping into discount. This gives them opportunity to create backwardation positions. Individual traders have reduced their position significantly over this time. From Feb to March it had halved and further 40% reduction in positions since March till date. Net-net they are at just 30% of their February positions. Clearly, volatility is one important reason for this reduction, also the increased margins are creating further issues.

Index Calls: Individual traders have turned around full 360 degrees from being net buyers of Index Calls to being net sellers of Index Calls. Prop traders have significantly reduced their Short positions, by ~80%. DIIs have covered all their Long positions and are near zero positions. FIIs who had reduced their net Long Positions are almost back to the February levels.

Index Puts: Prop traders and Individual traders have been short here across all time frames while DIIs and FIIs were long. While Individual traders have reduced their Shorts significantly, more than 80%, Prop traders have increased their positions nearly 5x on a very low base. Net-net overall positions are down by ~70%. 

Stock Calls and Stock Puts: This has been comparatively a smaller market and has shrunk further. While its largely been a trade between Prop traders as Short and Individual traders as Long for Calls, the overall positions have shrunk by a third part. As for Puts the trade is reverse, Prop traders are Long there and Individual traders are Short. The positions out there have also reduced by ~40%.

Keeping an eye on the positions out here will keep abreast with the overall structure of the market.

Happy Trading!!!

Cheers.