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HomeFutures & OptionsWhat is Long Build-Up and Long Unwinding in Stock Markets?

What is Long Build-Up and Long Unwinding in Stock Markets?

Futures and Options (F&O)

Over the past decade, Futures and Options (F&O) have gained increasing importance in the market. Always remember that trading futures and options without proper knowledge can lead to destruction. Today, we will explore the concept of the long build-up and long unwinding in the stock market.

Long Build-up: A Bullish Bet Initiated

Let’s begin with the long build-up, which indicates that more investors anticipate price increases and are entering long positions. The stock may be oversold, positive news about the company may have emerged, positive global factors may be at play, or the stock may be in a very strong support zone or maybe it is experiencing buying from HNIs, or a combination of these factors.

It’s important to note that both the price and open interest rise during the long build-up. Despite the increase in price, buyers agree to buy with the expectation of selling the instruments when they reach their targets. This increased interest from buyers contributes to the long build-up, where buyers create long positions.

Read: What is Short Selling and Short Covering in Stock Markets?

However, it’s crucial to keep an eye on market conditions before placing any trade. The long build-up phase is considered the best time for traders who are willing to go long. It’s when more traders expect an increase in the price of the underlying asset.

Let’s suppose that brokerage firms have started reporting higher targets for a particular stock, and positive news is on the horizon from the top executives. People typically begin taking positions in the stock with the aim of achieving these favorable targets. If things go according to plan, they may make a substantial profit by the expiration date or even before that.

The top three stocks experiencing long build-up today are as follows:

Company Name Futures Price Rs % Change Expiry Day OI OI Change %
Bajaj Auto 5477.75 6.72 26-Oct-23 3381000 42.18
Nestle India 24098.2 3.34 26-Oct-23 35120 26.41
Ultratech Cement 8543.7 2.87 26-Oct-23 1567200 7.87

 

Long Unwinding: Buyers are exiting the market

Long unwinding, on the other hand, is a strategy employed by traders who have previously taken long positions in a futures contract. These investors anticipate a price increase and buy the contracts.

However, when they perceive that the market conditions have turned unfavorable, or their target has been met, they start either selling their long positions or booking profits on their long position. This selling pressure results in a decrease in open interest and can contribute to downward price movements. In this, both the price and open interest are likely to decrease.

Long unwinding indicates a shift in sentiment from bullish to neutral or even bearish. As long holders exit their positions, selling pressure can build, pushing prices lower. In short, long unwinding can be seen as a potential sign of a trend reversal, and traders often monitor it closely to make informed trading decisions.

The top three stocks experiencing long unwinding are as follows:

Company Name

Futures Price Rs % Change Expiry Day OI

OI Change %

State Bank of India 573.3 0.17 26-Oct-23 86491500 6.1
HDFC Bank 1517.6 0.39 26-Oct-23 130342800 4.7
Coal India 314.4 0.79 26-Oct-23 64936200 3.4

 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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