F&O Stocks: Wipro, Tech Mahindra Among 5 with Short Buildup; Understanding Short Selling

Short selling happens when a trader bets that a stock’s price will drop. They sell the stock they don’t own, hoping to buy it back at a lower price to make a profit. For example, if a stock is trading at ₹100, a trader might sell it at that price and then buy it back later at ₹90, making a ₹10 profit.

How Do We Spot Fresh Short Positions?

When a stock’s price drops, and the open interest (the total number of outstanding contracts) increases, it indicates a buildup of fresh short positions. This signal is stronger if trading volume also rises as the stock price falls.

Stocks with New Short Positions on Monday

1. Coforge: Dropped 3.81%, with open interest rising 18.39%.
2. Persistent Systems: Fell 3.46%, with open interest increasing by 5.03%.
3. Tech Mahindra: Declined by 2.8%, with a rise in open interest of 3.48%.
4. Vedanta: Price fell by 2.66%, with open interest up by 4.58%.
5. Wipro: Dropped by 1.97%, with open interest increasing by 5.42%.

Additional Checks for Traders

To make better trading decisions, traders should also consider the following:

1. Bearish Crossover: Check if the stock price has fallen below its 20, 50, or 100-day moving average. This can confirm the downward trend.
2. Long Positions in Put Options: Look for significant long positions in out-of-the-money put options, especially far-from-the-money ones. This might indicate that someone expects the stock price to fall further.

Traders can use the buildup of fresh short positions as a signal that a stock might continue to decline. By watching stock prices, open interest, and trading volumes, along with additional checks like moving averages and put options, traders can make more informed decisions.