Lululemon Athletica LULU -8.56%decrease; red down pointing triangle cut its outlook for the year, citing fresh challenges, including a spike in negative commentary around the brand and a lackluster response to new products.

The headwinds derailed what the athleisure company said were some budding signs of positive traction in the fiscal first quarter as it worked to improve results in North America, its largest market.

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The Nifty started Wednesday’s trade on a rather timid note. As the underlying index was quietly drifting downwards, the futures started trading at a deeper discount of nearly 10 points.

It was the last hour of trade that saw better volumes and a sharp movement. The fall amid global uncertainties has brought the Nifty once again to the level of 5400. Even the participation seems to be a little scared, as Nifty futures ended the day’s trade with an addition of over a million shares in open interest indicating creation of hedges.

As far as stock futures are concerned, we are very near to the highest-ever open interest with 195 crore shares in open interest. With nearly 70% of the stocks still trading with a premium, the bias among participants seems to be upwards. This would create a bit of pressure on the market in case of any macro uncertainty.

As we are almost half way through to expiry, it makes sense to continue with long positions, but along with long puts simultaneously so that losses are capped, still keeping all the upside open.

On the options side, Nifty August series open interest put-call ratio is at 1:58, indicating a moderately bullish composition. Even the implied volatilities element of the options which indicate the assumption of the risk remains very low. This indicates we may not see a huge downside as far as the August expiry is concerned. With over 10 million shares in 5300 August Put, the Nifty may find support around the level of 5300.

We feel one can do a Nifty bear ratio spread to hedge trading longs, by buying 1 lot Nifty August 5400 PE & selling 2 lots of Nifty August 5300 PE.
This strategy accrues profit within the 5200 & 5400 range in case the Nifty ends up in this range on expiry. On the event the Nifty heads upwards to close above 5400, one can still have a cash inflow and no cost of hedging. The strategy does incur loss below 5200, which we feel shall hold good for the August expiry.

(Bhavin Desai is Manager (derivatives), Motilal Oswal Securities )

Indian funds have grabbed seven out of the top 10 spots in the league table of leading small-cap funds across Asia, thanks to some canny stock-picking amid growing investor appetite for cheap stocks with potential to deliver multi-bagger returns.

An analysis of nearly 300 Asian small-cap schemes shows DSP BlackRock Micro Cap Fund leading the charge, delivering an 82% return over the past year. Managed by Vinit Sambre, who has been with DSP BlackRock for a little over three years, this fund has also soundly beaten the 58% rise of BSE’s Small-Cap Index since August 2009. The 30-share benchmark Sensex has gained 20% during this period while the wider BSE 500 Index is up 27%.

The other six schemes — Sundaram BNP Paribas Select Small Cap, HSBC Small Cap, JPMorgan Smaller Companies, Franklin India Prima, Franklin India Smaller Companies and ING Vysya CUB — have given investors returns between 44% and 57% on a trailing 12-month basis. These schemes manage anywhere between `46 crore and `954 crore.

Four of these funds were launched during the peak of the previous bull run between January 2007 and March 2008, and investors in them have also had to endure a massive erosion in their initial investment in the downturn that followed.

Mutual fund tracking firm Value Research called the DSP fund as an impressive product in the entire “small-cap universe”, noting that the stocks held by it were “credible, known names and there is a marked absence of momentum in the portfolio”. The fund’s holding includes companies with a high return on equity and strong leadership niches in their industries.

Value Research CEO Dhirendra Kumar said the closed-ended nature of some of these funds helped them weather the market turbulence. “These funds did not face redemption pressures through the declining phase. This, in turn helped them invest for the longer term,” he said.The DSP fund became open-ended in June this year and fund manager Mr Sambre has kept nearly 10% of his `311-crore corpus in cash to meet potential redemptions and to latch onto any opportunity in the market.

There are 10 small-cap funds in India, which manage roughly `3,450 crore in stocks. These account for just 2% of the total AUM under equity schemes.

Market experts say that as many large-cap stocks became fully priced and relatively unattractive over the past year, the rally shifted to small caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the small-cap charge in the market. Ahmedabad-based Symphony has surged 830% while VIP has risen 548% in the past 12 months. In comparison, top two gainers on the Sensex — Tata Motors and Tata Consultancy Services — are up 135% and 61%, respectively.

“Many small caps with excellent businesses were trading at a pathetically low valuations — many were trading below book value and at dividend yields of 5-7%,” says Deven Choksey, chief executive officer at KR Choksey Shares & Securities. “They just got purchased heavily.”

Even though small-cap funds have delivered solid returns in the past one year, experts say that investors must be cautious and have just 10-15% of their equity exposure in such funds or companies. This is largely because of the volatile nature of their stock performance.

“Investors should have a strong stomach and the ability to

withstand substantial declines in such funds,” says Mr Kumar at Value Research.

MUMBAI: A trading combination involving Nifty options is gaining prominence among savvy trading desks of institutional investors. The strategy, known as calendar spread, where traders simultaneously sell options contracts in the current month and purchase in the next month, is being recommended by brokers to institutional clients, who see sharp moves in Nifty options’ implied volatility — a key component of options pricing — in September.

“There is scope for money to be made by selling current month vols (implied volatility) and buying September vols,” said Girish Patil, manager-derivatives, Antique Stockbroking. In this spread strategy, traders use the premium they receive by selling the current series to part-finance the cost of buying options in the next month. “With only a few more days for the August series expiry, vols are unlikely to jump in this series,” Patil said.

Futures and options contracts for the August series will expire on 26th while the September series will expire on 30th next month.

Options sellers, who pocket the premium from the buyer, prefer fewer trading days in a trading month because of time value — another key aspect of options pricing. Time value of options decays closer to expiry of contracts, resulting in limited movements in options prices.

Selling Nifty 5500 calls options in the August series and buying the same contract in the September series is a good strategy in this kind of a market, said Shailesh Kadam, AVP-derivatives, PINC Research.

“This strategy bets that the Nifty will be range-bound and will not move above 5500 in the August series, while the undertone is positive next month,” Kadam said.
In the past one month, the Nifty has largely moved in a tight band between 5350 and 5450, resulting in the volatility index — a measure of traders’ expectations of near-term risks in the market — moving in the 15-20% band, the lowest range since January 2008. This indicates traders are comfortable about the market levels in the near-term.

Brokers said that options traders have struggled to make money, of late, in the absence of sharp index movements. “Vol buyers (buyers of options) have lost their money, while sellers don’t have the courage to sell vols at such low levels,” said the head of derivatives at an institutional broking house. “So, unless there is a sharp move, calendar spread appears to be the best strategy,” he said.

Walmart

WMT

0.97%

increase; green up pointing triangle is getting into the restaurant-delivery business.

The retail giant said Thursday it will offer customers the option to order 30-minute delivery from 1,400 Subway locations inside its stores by this summer, the next stage of its plan to use its driver network to go toe-to-toe with food-delivery companies such as Uber Technologies

UBER -2.08%

decrease; red down pointing triangle and DoorDash DASH -2.04%decrease; red down pointing triangle.

The latest Market Talks covering Energy and Utilities. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

1538 ET – Oil futures pull back after three straight sessions of gains, with a tentative ceasefire agreement between Israel and Lebanon suggesting possible support for U.S.-Iran talks. “The problem is that Iran-backed Hezbollah is not part of the agreement,” Arlan Suderman of StoneX says in a note. Recent data show some ships getting through the Strait of Hormuz, he notes. “The increased passages does not come close to erasing the energy deficit, but it does help for the time being. Nor do we see production being restored in the region.” WTI settles down 3.1% at $93.04 a barrel. Brent falls 2.8% to $95.03.(anthony.harrup@wsj.com)

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