Futures and Options are quite difficult to understand even for active investors of the stock market. F&O Segments affect the stock price so much. So let’s understand the most important things: Long Build up, Short build up, Short covering, and Long unwinding which affect the stock most of the time.
However, to understand these terms we need to discuss a few related things. let’s start with Open Interest:
Table of Contents
What is Open Interest ?
You must purchase and sell futures and options contracts on a monthly basis. However, It is also weekly for the Bank Nifty. The open interest is 1 when a person buys a derivative but does not sell it. The phrase “open interest” refers to the number of derivative contracts that are active in the market.
If a contract is merely Bought or Sold, it is considered open. When you can purchase a contract which is not sold and also sell a contract which is not purchased. The contract is open in both cases, and open interest rises.
If the contract is both bought and sold, it is considered completed. As a result, open interest at a given time indicates the amount of contracts open or sold during a given length of time.
Important points about Open interest
- When new contracts are added, OI rises. When contracts are squared off, OI drops
- nevertheless, OI does not alter when contracts are transferred from one party to another.
- Unlike volumes, OI is constant data.
- Because OI and Volume statistics alone does not transmit information, it is necessary to always couple them with price information in order to evaluate the significance of their distinct variations.
- Be wary of instances where the OI is abnormally high, as this signals significant leverage.
What is Long in F&O?
Long or long position is a condition in which investors are Bullish. It denotes that someone anticipates a rise in stock values. As a result, they are purchasing the stock first and then selling it afterwards.
Example
Long positions are bought at a cheap price and sold at a high price in order to profit. People are selling at a premium and will purchase at a reduced cost. The sell and buy actions take place at different times. This is the only distinction.
What is Short in F&O?
Short or Short position is a condition in which investors are Bearish. It indicates that someone expects the stock price to fall. As a result, they sell the stock initially, intending to purchase it afterwards.
Example
For short sales, the first high price is sold, and the final low price is bought. The approach is opposite to long. The Sell comes first, followed by the Buy. Long-term purchases are made initially at a cheap price and sales are made last at a high price. The buy comes first, followed by the sell.
Long Build UP
Long build up indicates that more investors are anticipating price increases and are taking Long positions. This can be due to many reasons including that the stock is in an oversold zone, some good news comes about the stock or some positive global cues.
During the long Build up the rate and Open Interest both rise. you can check in any stock screener which you are using. However, keep an eye on the market conditions and other news as depending only on long build up can be risky for traders.
Example
Let’s Suppose brokerage firms started reporting increased targets for the reliance and there is also some good news is expected from the management. So people usually start taking positions in the stock for a positive target. If things go well, They can earn good profit by the expiry or maybe before that.
Long Build up Data
You can check the data on below links
Other related Terms
Short Build Up
Short build up indicates that more investors expect rates to fall and are taking Short bets. This can happen due to many reasons like stock is in an oversold zone or some bad news comes about the stock.
During the Short build up the price falls and the Open Interest rises. This indicates that more traders anticipate prices to fall.
Long Unwinding
While in Long Unwinding people start selling their long position due to some news or their targets are achieved. The reason for long unwinding can be different but the result will be the same.
The price of the stock will drop or stop increasing. If long holdings are sold off, open interest will also decline. This represents Long Liquidation or Long Unwinding.
Short Covering
If you’ve understood the above three then you’ll know what we are talking about. Traders start buying those stocks which they sold already before to close their open positions.
This can happen due to some good news about the stock or targets are achieved for which traders are looking for.
If the short positions started then the open interest would decline. The price will rise, but open interest will fall.
How to use long Build up and short build up?
You can use the above analysis in combination with the Nifty Open Interest graph to determine to either buy a Call or a Put option.
At a given price, the Long Build up and Short Covering indicate that the price will rise. You can purchase the call option in this instance.
The price will drop due to the long liquidation and short accumulation. You can buy the Put option in this instance.
Based on the Open Interest, this is not the approach. To enhance it loss-proof, mix it with global market conditions and technical indicators.
Conclusion
The data of F&O segments change frequently so you must keep an eye on it closely. However, Don’t only stay dependent on it as news and global market conditions can change it within a few minutes.
This is all from our side regarding Long Build Up. Although, if you have any doubts you can just comment below.
Other Interesting blogs related to long buildup and short build up:
Strike Price is Outside the Allowed Range
FAQ About long buildup
long unwinding?
In Long Unwinding investors which are holding long positions have to sell their positions .If long holdings are sold off, open interest will decline. The price will drop, as will the amount of open interest.
long build up meaning in hindi?
लॉन्ग बिल्ड अप इंगित करता है कि अधिक निवेशक मूल्य वृद्धि की उम्मीद कर रहे हैं और लॉन्ग पोजीशन ले रहे हैं। प्रभावशीलता की पहचान करने के लिए, वास्तव में मूल्य और ओपन इंटरेस्ट देखें।
short build up meaning in hindi?
शॉर्ट बिल्ड अप इंगित करता है कि अधिक निवेशक दरों में गिरावट की उम्मीद करते हैं और शॉर्ट दांव लगा रहे हैं। एक विचार प्राप्त करने के लिए, वास्तव में मूल्य और ओपन इंटरेस्ट देखें। शॉर्ट बिल्डिंग तब होती है जब कीमत गिरती है और ओपन इंटरेस्ट बढ़ता है।
long unwinding meaning in hindi
लॉन्ग अनवाइंडिंग में निवेशकों को जो लॉन्ग पोजीशन रखते हैं, उन्हें अपनी पोजीशन बेचनी पड़ती है। अगर लॉन्ग होल्डिंग्स को बेच दिया जाता है, तो ओपन इंटरेस्ट में गिरावट आएगी। कीमत गिर जाएगी, जैसा कि Open interest की राशि होगी।
Short build up meaning in stock Market?
Short build up indicates that more investors expect rates to fall and are taking Short bets. To gain an idea, actually look at Price and Open Interest. Short building occurs when the price falls and the Open Interest rises.
