Impact of F&O on Cash Segment ?????????

#1
Hi Fellow Traders,

Dude....as we all know that Futures & Options segment are Cash-Settled and hence involves NO DELIVERY.

So, I was wondering, how come F&O Segment (whether Long or Short position build-up) impacts the Cash segment.

To be more specific,

the other day I read in an article that there is huge build-up of short positions in F&O segment. As a result, this will trigger Short-covering and lead to Rally of market.

I understand that when we square off positions in F&O, it is Cash-setlled and there is no delivery at all.

So, when there is no delivery, how is the F&O segment going to AFFECT the Cash segment at all.

Think Guys....

I need an Proper answer...

Sangfroid :cool:
 
#3
Thanks capricorn,

was also wondering whether underlying price moves the price or f&o price moves the price of the underlying.

as all futures shares are electronically controlled, the computers will adjust the difference, to take the price difference (read small profits)

you can also observe that BSE cash and NSE cash prices are also synchronized for arbitrage.
 

AW10

Well-Known Member
#4
As I understand the reason behind it.. Price movement depends on the flow of smart moeny. IMO, there are 2 types of smart money - first Short term smart is of professional short term traders and other long term smart money is from Mutual funds / FII. The first category plays in F&O due to leverage whereas second category takes delivery hence play in Cash mkt. Second category uses F&O to hedge the position.

So when shorts are built up in F&O, it indicates that short term smart money has taken bearish position. As they are quick to take profit, hence there will be buy activities around the corner as they are squaring off their position. Cash and F&O price are highly corelated hence buy in any one of them will trigger the overall buy sentiment.

Atleast this is what I understand. Waiting for any other logic if anyone here can provide it.
Happy trading.
 

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