Learn how to interpret F&O indicators with Sushil Finance
Put call Ratio (PCR)- It is known as the contrarian indicator. If the Nifty‘s current month OI PCR is in the range of 0.7 to 1.0, it indicates the bearish signal and the market seems to be in oversold zone due to which short term bounce back is expected.
Put call Ratio (PCR)- It is known as the contrarian indicator. If the Nifty’s current month OI PCR is in the range of 0.7 to 1.0, it indicates the bearish signal and the market seems to be in oversold zone due to which short term bounce back is expected.
Open Interest (OI)- These are the outstanding positions in the futures markets. This is used to find the liquidity in any counter.
Open Interest change- It is the change in outstanding position in any counter. OI itself cannot provide any indication and has to be interpreted along with change in price. In general the change in OI and price is calculated in percentage for analysis purposes.
Premium- When the future price of any counter is quoted higher than the spot price, then the counter is said to be in premium and difference between the future price and the spot price is used to find the quantum of premium. The considerable increase in premium along with increase in OI and Price indicates that fresh long positions are being built in the counter.
Discount- When the future price of any counter is quoted lower than the spot price, then the counter is said to be in discount and the difference between the future price and the spot price is used to find the quantum of discount, which is always a negative value. The considerable increase in discount along with increase in OI and decrease in Price indicates that the fresh short positions are being built in the counter.
Cost of Carry (CoC)- It’s the summation of the spot price and the holding cost of the asset class. Generally CoC is a positive number.
For commodity futures- Holding cost is the cost of financing plus storage cost and insurance purchased.
For equity futures- Holding cost is the cost of financing minus dividend returns.
The interpretation for cost of carry is similar to the premium and discount interpretations.
Rollover- If a trader wants to carry forward the current month’s future contracts to bet on the same view, then he can square up the current month future contract and initiate the same position in the next month, on or before the expiry day of the current month contract. This procedure is known as the rollover of the current month contracts. Rollover is calculated in the form of percentage. If the % rollover is above the average of last three month’s rollover, it implies that the same sentiment will be carried for the next month. Rollover interpretation will be more precise if it can be analysed with the rollover cost.
Implied volatility (IV)- It is a measure of market expectations regarding the asset’s future volatility.
This is used to gauge the demand and supply of the options. IV is also used to compute the premium of option by which trader can understand that the option is quoted at a cheaper or expensive value.
Historical Volatility (HV)- HV reflects the past price movement of the underlying asset. From the HV, one can gauge the price movement of any asset class. This can also be used as a benchmark for comparing it to implied volatility.
INDIA VIX- India VIX is the volatility index computed by NSE which is based on Nifty options. This indicator is used to understand the perception of the market’s volatility in the near term (in general, 30 calendar days). Higher the value of INDIA VIX higher is the expected volatility and vice a versa.
SGX Nifty- is the Indian Nifty Index traded on the Singapore stock exchange. SGX Nifty opens at 8.00 am on all working days and is mostly the initial direction to Indian Market.
Note- Please make an important note that the F&O indicators generally provide the indications in both directions and can mislead the new users. So new traders are advised that they should not initiate the trades based purely on the above indicators only unless they are highly comfortable with this data.
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