F&O stocks: Ashok Leyland among 3 stocks with short buildup
Coming to the buildup of fresh short positions. When the stock price moves downward and open interest on the counter increases, it is taken as a sign of a long build-up.
The signal is considered more reliable if the volume on the counter also sees an increase while the stock price is declining.
The Muthoot Finance stock price fell 3.6% and its open interest saw an increase of 4.86%. Tata Communications saw a price decline of 2.1% and its open interest rose 4.17%.
Ashok Leyland’s stock price dipped by 1.97% and the open interest saw an increase of 1.38%.
Some additional checks would help traders make better trading decisions as they raise 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 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 key factor that traders should consider is to look at the matrix of build-up of short positions on the basis of 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.
