Hi all.I have many questions which may sound stupid to inofrmed traders but still i could not refrain myself from asking these questions pls answer my questions :
1.i often hear from cnbc tv,"short positions are being built up in this counter,long positions are added in that counter"
now my question is how can they say that "shorts have added or lons have added" because every long has a corresponding and equal short.
2.why anil and mukesh ambani and such big promoters dont sell their holding in a company when the down trend starts(say at the end of january 2008) and buy back when the trend turns bullish,in this way they can save much money
pls answer these questions and i will ask more stupid questions.
OK.
Let's take a category as an example to make things clear.... say Nifty Futures for the current month.
On any given day, at the time of the opening bell, there is some 'open interest' which is really the number of oustanding contracts... sold.... and also bought. Fine.
Let's say that during the particular session, Nifty Futures for the current month fall, say, from 2980 to close at 2920.
It is possible that -
1. People may be short sell NF
2. People who have bought NF in previous sessions, may be selling and booking loss.
3. People who have sold NF in previous session may be buying back to book profit.
4. There also could be some buying at various levels.
What should be the impact of all this on the open interest at the close of the session.
Should the number of contracts outstanding increase or decrease and why?
Usualy, in the down trend, if the open interest increases, it amounts to trade in line with the market trend, which was down. In other words, it amounts to sell or increase in short position.
Alternatively, if the number of contracts get reduced, then it amounts to closure of those contracts. It means that although the market trend is down, people are neither short selling, nor buying. Only selling the contracts bought or buying the contracts sold, to close the position.
This amounts to reduction in short position.
Needless to say, that all the above is only when the markets are moving down. Position gets reversed, when the market trend is up, and longs get developed.
To summerise :
In a down trending market, if the open interest increases, shorts are increased. If OI reduces, short positions get covered.
Second....
The Ambanis control their companies and have all the inside information. If they do, what you want them to do, then they shall be taking an undue advantage of insiders info avalilable to them, which is legally NOT allowed. Simple.
Cheers!
