What is Call Unwinding?

When People start investing or try to learn the stock market many new terms they hear for the first time. Many of these are literally confusing like calls, put, unwinding etc. In this post we will discuss What is call unwinding? 

However, to discuss call unwinding we need to understand many other terms to clear to your doubts regarding call unwinding.

Introduction

Everyone knows that the F & O segment is quite difficult to understand. There are many people who never touch this segment even if they are working in the stock market.

The complexity is the main hurdle for the people who wish to enter this section. Many people fail to understand terms like calls writing, put writing, unwinding, etc.

So let’s start with unwinding. After that we will discuss call writing and what is call unwinding?

Unwinding Meaning in Stock Market

The term “unwinding” refers to the process of closing out a trading position in the stock market. It is most often utilized when the trade is complicated or having big numbers. Unwinding is also used in the process of fixing a trading mistake. In those cases, it may be complicated and involve several actions or trades.

When buying or selling happens in many transactions rather than just one, the word “unwinding” is more commonly used.

Example

Here the Examples of Unwinding:

Unwinding by Investor

The major action taken by an investor for unwinding is to sell the security in a call Option. To unwind a Put Option, an investor will need to purchase the short stock back.

Unwinding due to mistake

If a broker may sell part of a position that an investor intended to add to. The broker will have to unwind the trade by first acquiring the sold stocks and then acquiring the stocks that should have been bought initially.

Difference Between Futures and Options
Also read : Difference Between Futures and Options

What is Call Writing?

Making a contract to sell or purchase the securities at a set cost on or before a certain date in the future is known as call writing.

The call writer is obligated to sell or buy the securities at the strike price on or before the expiry date. The person who writes call options is paid for entering into an officially binding contract.

The majority of call options are written in lots of several stocks.  The call writing premium is determined by a number of measures, including the current stock price, volatility, and the expiry date.

What is Call Unwinding?

When a trader sells it’s position in a call option it is called as a call unwinding. This can happen due to any news or might the price of that call option hit the target for which a trader was looking for.

Other possibilities for call unwinding is a due to error while writing the call or adding more lots in a call option. You can find the daily data just by Clicking Here. Let’s also understand it with an example.

Long Build up
Also Read : Long Build up

Example

Let’s Assume a trader x has entered in a call option of reliance at 1905 and thought of a target of 2010 before the expiry. However,  Reliance hit the target two day before the expiry. So the trader can sell the position after hitting the target. This is called Call unwinding.

If reliance goes down below 1905 than also before or on the expiry date the trader must need to unwind the call.

Long unwinding meaning

Long unwinding means when a Trader sell the position in F&O  pf underlying asset or stock which is held by him/her with a exptection that stock price will incease. Whether to make money or to prevent hazards.

Long unwinding refers to the process of exiting a long position in a stock or a derivative contract.

Conclusion

If you wish to enter in F&O segment, we advise you to learn it properly before entry. There is a risk of loss in this segment as there will be a specific date before you need to complete the transaction.

We hope we are able to explain unwinding meaning in share market. Let us know your views in the comment section

Other Interesting blogs related to What is call unwinding?

How to Pledge Shares in Zerodha?

Upper Circuit Meaning

What is Convert Position in Zerodha?

FAQ About long unwinding meaning

What is call writing?

Trader enter in a contract to sell or buy script at a specific value before or on particular date of the future is called Call writing.

Long unwinding good or bad?

It is totally depend on the situation. There is no fix rule regarding long Unwinding is good or bad.

What is call unwinding in hindi?

जब कोई ट्रेडर किसी कॉल ऑप्शन में पोजीशन बेचता है तो उसे कॉल अनडिंडिंग कहा जाता है।

What is unwinding?

The unwinding is means the process of closing a trading position in share market.

Call unwinding and Put writing?

Monthly contracts are being unwind-ed by call writers, while weekly and monthly contracts are being added by put writers. This indicates that the market is bullish.

Profit Must is being built by a passionate team with in-depth understanding of the IPO sector and stock market. The team does their own research and publishes articles on Profitmust.com based on their findings.

Leave a Comment

error: Content is protected !!
Share via
Copy link
Powered by Social Snap