F&O Stocks: Tata Chemicals, IDFC First Bank among 5 stocks with short buildup
When a trader is expecting the stock prices to fall, she may sell the stock without owning it and buy at a lower price. A short build-up happens when a stock price moves downward and open interest on the counter increases.
In Thursday's trading session, the following five stocks witnessed a build of fresh short positions. Let’s first understand how this conclusion is reached whether a stock has seen a buildup of fresh short position or not. To understand it we have to look at what “short selling” means.When a trader is expecting the stock prices to fall, she may sell the stock without owning it and buy at a lower price. For example, stock XYZ is trading at 100, and a trader sells the stock at Rs 100 and buys it back at Rs 90. He made a profit of Rs 10. Selling the stocks without owing them is called short-selling.
Coming to the buildup of fresh short positions. When a stock price moves downward and open interest on the counter increases, it is taken as a sign of a short build-up. The signal is considered more reliable if the volume on the counter has also seen an increase while the stock price declines.
IDFC First Bank's stock price dropped by 2.75%, and the open interest saw an increase of 6.86%.
Tata Chemicals' stock price fell by 2.68%, and open interest saw a rise of 6.83%.
Indiamart Intermesh declined by 1.71%, and open interest saw a rise of 12.74%.
Birlasoft fell 1.53%, and open interest saw an increase of 11.18%.
SBI Card price declined by 1.3%, and open interest saw a rise of 2.87%.
Some additional checks would help traders make better trading decisions as they increase the probability of a follow-up of the upward movement in the stock price.
First, if this long build-up is accompanied by any bearish crossover, which means whether in the current down move when the open interest has moved up, the stock price has moved below its 20, 50 or 100-day moving average. Another couple of points traders should keep in mind is to look at the matrix of build-up of short positions based on open interest. Also check whether there is any extraordinary build-up of long positions in any out-of-money put option, especially any far-of-the-money put option. That indicates the probability of any informed person taking exposure through options for any possible downside.
Source: Stocks-Markets-Economic Times
