(Reuters) - The flip in the positioning of a large swathe of derivatives traders in Indian stocks indicates that they expect volatility to pick up in December as the market oscillates in a wider range, according to three brokerages.

The benchmark Nifty 50 has tumbled 8.1% since hitting an all-time high in late September on relentless foreign outflows and moderating earnings growth.

The Nifty's trading range dropped from about 1,834 points in October to 1,274 in November, while volatility inched up to 15 from 12 over the two months, a gradual rise after hovering around 13 for four months.

The trading range will widen to about 1,500 points in December, while the rise in volatility picks up pace, according to Nuvama Alternative and Quantitative Research, Motilal Oswal and IIFL Securities.

Their estimate is based on how traders repositioned their expiring monthly derivatives series on Thursday, which caused the Nifty to slide about 1.5%, the most in any session since early October.

Investors have to close or roll over their futures and options contracts as they expire each month and their fresh positions give cues to the potential trajectory of the market.

High net-worth individuals (HNI) and retail clients raised their single-stock future longs and trimmed longs in the Nifty index in the November series, according to the brokerages.

In contrast, they had added Nifty longs in six of the last nine monthly series, with the exceptions during the mid-year national elections when investors typically prioritise safety.

The flip this time also indicates caution and shows traders now prefer to pick individual stocks rather than back the market via the benchmark index, the three brokerages said.

Even foreign institutional investors (FIIs) reduced their Nifty shorts and added single-stock future longs, the data showed.

Retail traders and FIIs account for about 90% of all derivatives trading.

Moreover, the market-wide open interest (OI) -- the total number of active unsettled contracts in futures markets -- has risen in the past month, indicating rising trading activity.

That, coupled with the caution indicated via the derivatives positioning, could lead to higher volatility, according to Abhilash Pagaria, head of Nuvama Alternative.

The markets will take time to recover from the recent sell-off as they remain overvalued, according to equity analysts in a recent Reuters poll.

(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Savio D'Souza)

By Bharath Rajeswaran