In this post, we will talk some basics of terms related to Futures and Options.

  • Open Interest: It is the total number of outstanding contracts (in future or options) that are held by market participants at the end of the day.
  • Long Buildup: When Volume traded or Open Interest is increasing along with an increase in price, it means traders/investors are bullish on the stock. These type of stocks are generally most suitable for a breakout and a buy candidate “technically”.
  • Short Covering: Traders who have shorted their positions in cash market i.e. who have sold the stock beforehand expecting that the price will go down, are buying them back. They are covering their positions in order to cut down on their losses or booking their profits. Prices move up when short covering happens. Traders should avoid going long on these stocks.
  • Long Unwinding: Unwind means offloading your position. Long means buying stock for time being. i.e. holding a stock for the longer period. Long unwinding means selling the positional stock or selling the derivative after a sustained increase in long position as some downside in price is expected after a huge build-up of open interest which is not sustainable. It basically means that bears may be expected to win in near term. Traders can create a short position on long unwinding but should be supported by other indicators.

Website to check FnO statistics