Derivatives traders can build fresh positions in Reliance Petroleum Ltd (RPL) in the December series, which starts on Friday, after outstanding positions on the counter reduced considerably and following the company’s 23 November announcement that its promoter had sold a 4% stake.
On 6 November, the National Stock Exchange (NSE) banned traders from building fresh positions in RPL after a month-long speculative rally in the stock led to a huge build up of open interest.
Open interest is the outstanding position traders have in the futures and options market. A futures contract is an exchange-traded contract requiring the delivery of shares at a specified price on a specified date. An options contract is similar except it deals with the option to transact shares. All derivatives contracts expire on the last Thursday of a month. At this point, traders can choose to extend the contract (this is called rollover), or settle it.
In RPL’s case, only around 50% of the futures and options positions in the November series, which expired on 29 November, were carried forward to December. On Thursday, RPL stocks rose 12% to close at Rs215, while the Bombay Stock Exchange’s 30-stock Sensex gained 0.34% allowing for the creation of fresh positions.
NSE’s 6 November ban came after open interest in RPL crossed the prescribed 95% of marketwide position. RPL was the first among 50 Nifty stocks to face such a ban. Once outstanding futures & options (F&O) contracts breach 95% of marketwide position limit, the ban is imposed and it can lifted only after the marketwide position falls below 80%. The stock price reached its peak Rs295 on 1 November in intra-day trade. Since then, it has lost around 18%.
The marketwide position limit is defined as 20% of non-promoter holding. In RPL’s case, non-promoter holding was 900 million shares and hence the marketwide position limit was set at 180 million shares. Following Reliance Industries Ltd’s share sale this month, the non-promoter holding has increased by 20% to 108 crore shares. RPL’s marketwide position limit is expected to increase by 20% on the first trading day in December, giving traders room to build fresh positions. Going by the jump in share price on Thursday and the rush to build up fresh positions on Monday, it would not be surprising if the market-wide position limit is breached again, said Siddharth Bhamry, a derivatives analyst at Angel Securities Ltd, a domestic brokerage.