Nowadays almost all of us have a basic concept regarding the stock market, equity market, or share market, but sometimes we are a little confused about different terms used in this market.
As an investor you may come across different terms like Open Interest, Long build-up, Short build-up, Long unwinding, Short covering, and many more that you need to know to understand the functioning mechanism of the stock market.
Also, it’s quite tough to perceive the Futures and Options(F&O) for both the new and active stock market investors. But, it’s very important to know about it, as F&O Segments influence the stock values a lot.
You need to purchase and Sell out Options and futures once a month. Though it is weekly for bank Nifty. Here, the open interest(OI) is considered to be 1, When a trader pays for a derivative but does not sell it out.
The term “Open interest” implies various derivative contracts that are open in the marketplace. A contract is considered to be open if it is only purchased or it is exclusively Sold only.
Suppose, you have Purchased a contract but have not sold it out or You have only sold a contract but did not buy it. In both the alternatives, the contract is thought to be open, and also the open interest(OI) will go up.
OI is a constant data that does not differ when contracts are altered from one party to another one. It increases when new contracts are added and Open interest falls when contracts are balanced off.
Also Read: What is CE and PE In Share Market?
What does the term ” Long” refer to in F&O?
The term “Long” or long position implies such a position where the investors are bullish. It indicates that a person is expecting that the stock prices will go up. So they are purchasing the stocks to sell out afterward.
Long positions are purchased at a lower cost and sold out at a high rate to make revenue. So, the investors are trading at a recompense price and will buy at a lower price. These actions of selling and buying take place at varied times and this is the sole significance here.
“Long Build Up”
The term “Long build up” signifies that a surplus number of investors are predicting. It also signifies the price increases and is putting up with Long standpoints.
There are many justifications behind this projection like the stock is in an oversold zone. Some optimistic global guides or any favorable announcement appears regarding the particular stock.
Or, in simple words, Long build-up indicates that traders are giving rise to a ‘Long’ position, either by purchasing the call option or by putting option.
It must be taken with ref to either call or put. In case the ref is not referred to, then it will be concluded to be convened for buying. This will also imply that the market will go upwards.
Most importantly, throughout Long Build up both the rate and the Open Interest(OI) increase. You can easily inspect this in any of the stock screeners that you are using.
Nevertheless, don’t forget to be alert about the market conditions and other information regarding it. It is important to be sure of only on Long build-up can be venturesome for investors sometimes.
Long Build Up Example
Presume that the brokerage establishments began to report regarding the heightened targets for a particular company. Also, there is some favorable news expected from the authority of the company.
So automatically the investor will start holding positions in the stock for a beneficial target. And, if the prediction goes well, they can gain a good amount of profit by the expiry.
The Strategy Of Use Long Build Up
You can take the help of the above-market analysis along with the Nifty Open Interest graph. This will specify whether to buy a Put option or buy a Call.
Long build-up Indicates that the price will go up at a given cost. With that analysis in, you can buy the call option.
But, this is not the right technique point of the concept of OI. So for making the trade more loss-proof, you need to combine this analysis with international market details and also on different technical indicators.
One last thing that you always need to understand is the future and option segment used to change very frequently, so always be alert and be aware of the global economic condition.
Also, Don’t fully depend on the concept of Long Build-Up as sometimes this prediction does not function accurately.