F&O stocks: M&M, Hindustan Copper among 5 stocks with short buildup
Five stocks, including M&M, MCX, Hindustan Copper, NMDC, and National Aluminium, saw a rise in fresh short positions as their prices dropped.
In Wednesday's trading session, the following five stocks witnessed a build of fresh short positions. Lets first understand how this conclusion is reached that whether the 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, he may sell the stock without owning that and buy at a lower price, for example, stock XYZ is trading at Rs 100, a trader sells the stocks at Rs 100 and buys it back at Rs 90. He made a profit of Rs 10. Selling the stocks without owing the underlying stock is called short selling.Coming to the buildup of fresh short positions, When the stock prices move 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 as the stock price was declining.
M&M dropped by 6.98%, and the open interest saw an increase of 26.03%.
MCX fell 3.98%, and open interest saw an increase of 16.69%.
Hindustan Copper dropped by 3.82%, and the open interest saw an increase of 14.98%.
NMDC declined by 3.29%, and open interest saw a rise of 3.8%.
fell by 2.76%, and open interest saw a rise of 2.22%.
Some additional checks would help traders in taking better trading decisions as they increase the probability of a follow-up of the upward movement in the stock price.
First, if this short build-up is accompanied by any bearish crossover, it means that during the current down move, when the open interest has increased, the stock price has moved below its 20, 50, or 100-day moving average. Another couple of points traders should keep in mind when taking a trade based on the matrix of short position build-up on the basis of open interest. Also, check whether there is any extraordinary build-up of long positions in any out-of-money put options, especially any far-out-of-the-money put options. This indicates the probability of an informed person taking exposure through options for a possible downside.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Source: Stocks-Markets-Economic Times
