Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

How Have Stocks Done In a Month of High Carry?

30 Sept 2013Deepak Shenoy1 min read

Quick Facts

What is "How Have Stocks Done In a Month of High Carry?" about?
What category is this article in?: Premium Portfolio
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 30 September 2013.
How long does this article take to read?: 1 min read
What topics does this article cover?: Futures, Technical Analysis

Last week was the Futures and Options expiry and something strange happened. The Nifty October Future - 1 month away - was at a 1.1% premium to the Nifty, something that hasn’t happened too often. This is effectively a 13% “carry” for a month.

Let’s take a look at high carry situations in the past. When the Nifty next month premium (the difference between the next month future price and the Nifty spot) on expiry day has been very high, how has the Nifty performed in the next month? (HT to Vish for this post)

The big -34.7% move was in the 2008 time - the big Lehman move.

The stats show:

Average move: -4.7% (without the big Lehman move: -1.9%)
Upmoves: 4 (average +3.2%)
Downmoves: 8 (average -8.6%, without the outlier -4.9%)

With today’s and Friday’s downmoves we are already -2.8% from the close on Thursday. So yes, I know what you’re thinking - Why the heck didn’t I do this analysis on Thursday evening instead?

I had of course written one day earlier that a proprietary indicator I’d developed was showing a potential fall.

Interestingly, trades around on my other proprietary strategy - MACD + Bollinger Band Reject - were only showing short positions. A separate post on that.

Disclosure: Short a lot of stocks and indexes.