If you are a regular trader or investor of the share market, you may hear Futures and Options many times. Many traders face many problems in understanding F&O. If you want to do trading for a long time, you must know about F&O segments because it affects the prices of stocks. This article will learn some of the essential points of Futures and Options, including Long Build-Up. But before we start discussing Long Build-up, we also need to understand open interest, short build-up, and many other terms. So, let’s start discussing all these terms more comprehensively to help you deal with stocks effectively.
What’s the Open Interest Rate?
When the trader or investor deals in futures and options, they need to buy and sell their contracts every month. They can do this process every week as well if they have Bank Nifty. And here, the term open interest denotes 1 when traders buy the F&O but do not sell. Here open interest means the number of derivative contracts that have taken place in the stock market.
Open interest rises or comes into existence when a trader buys contracts that are not sold yet or not purchased yet by another trader. And when the contracts get purchased, the process for contracts is considered as completed. So, you can understand open interest as the rate of contract open in the given time.
Key Features of Open Interest
- Open interest increases when the new contracts are added.
- Open interest does not change the contract, which is transferred to the other party.
- Open interest stays constant, and it does not change as per the market trends.
Now, you have a basic idea about open interest so let’s slowly move to understand the long build-up.
What is The Meaning of Long in Futures and Options?
Long or Long position refers to what an investor has bought and when they bought that securities or derivative for the interest of selling these securities for a profit margin.
Key Features of a Long or Long Position
A long position indicates that the investor has purchased securities to sell for a higher margin in the future.
It also tells the asset is underlying with the ownership of its holder. Also, it is entirely different from a short position.
Here being extended means the outright ownership on the security purchased or the holder of the asset.
Example of Long in F&O
Suppose Trader A has bought XYZ security for a lower price to sell this in the future for a higher price to earn profit. Here the time difference plays a significant role because the assets are not purchased or sold frequently. Also, people buy these assets at a reduced price and sell these at a premium.
You might be thinking puzzled about short in F&O, so let’s have a quick look at this as well.
What is Short in F&O or Futures and Options?
Short position or short in F&O indicates that investors are Bearish, and they think the prices of securities will decrease. Therefore they sell their assets at the initial level to buy the same when prices get reduced to earn profit.
Example of Short in F&O
Short in F&O is one of the crucial terms used most often. Here assets are sold at a higher price and bought at a reduced price. It is the opposite of an extended position, and here first sales occur and then purchase.
What is Long Build Up in Stock Market?
Long Build up in the stock market refers to most investors assuming or anticipating that prices will increase the securities and start taking long positions. It can be an oversold zone of a particular stock or some positive or profitable news from trusted sources. At this stage, the long build-up and open interest both increase with a good percentage. You can check this by seeing market trends and news about the securities that can be risky.
Example of Long Build Up in The Stock Market.
Let’s assume you have heard from the brokerage firm that they show their interest in reliance stocks because the company is doing well and can declare good news for its securities holders. In this case, the people will start taking their long position for the securities of Reliance. If this clue goes well, then they will get higher profit before the expiry or before that.
What Are The Types of Long Positions?
Long positions can have many meanings depending upon stock market trends and situations. Here are some of the crucial types that will help you understand long build-up and many other essential terms.
The Long Position That is Holding Investments
In Long position holding investments, the investor holds stock or bond to raise the price of that security. Here, investors do not show their interest in selling their assets because they believe that the price will increase with the bullish intent. It also means the investor has tied up a good amount to keep them away from several opportunities.
Long Position Options Contracts
Long position option contracts do not affect much with the measurement of time. Instead, it refers to the underlying asset’s ownership. The option contracts can express both bullish and bearish sentiments. It depends upon how long the investor will keep the contract.
Long Future Contracts
Many times investors can also enter into long future contracts to take advantage of the adverse price of the asset. For example, assume that manufacturer A believes that the prices of gold will increase in some time. Therefore, to take advantage of this upcoming opportunity, he enters a future contract by signing a future contract with a gold supplier to offer him Rs10,00,000 gold as per the current market price in the prefixed future date. Whether the prices go up or down, it will not affect the quantity or price of gold already fixed.
What is Short Build Up?
It means that more investors think the prices of a particular stock will go down. Therefore they start participating in short bets to sell the stocks at a higher rate and buy the same at a lower rate in the future.
It can happen if bad news comes about that stock or the management is not confident about the performance. During a short build-up, the prices fall, and OI increases, which shows more investors are assuming stock prices will go down.
How Can You Use Long Build-Up And Short Build Up?
Having an understanding of long build-up and short build-up is essential to stay profitable in the stock market. Therefore you can use the Nifty OI graph to understand the trend to determine whether you should buy or sell stocks. You can also use a short-covering that refers to the stock prices will increase, and you should buy the stock for the same. If you think the price will go down, then you can sell the securities and buy in the future at a reduced price.
So, in this article, you learned what long build up is in the stock market and many other essentials to understand it in a better way. Along with these, you should also know that F&O segments can change frequently; therefore, you should keep a sharp eye on current market trends. As a pro tip, you should not wholly depend upon any good or bad news until you get a complete understanding. Because the global market can also change within some minutes. So, if you find this article informative and relevant, share it with your friends who love to know about the stock market and comment below to share your thoughts.