You must have heard that information or data prevails in today's market. Those who have the knowledge can win the situation on their terms. So, It becomes essential to understand and interpret various data points or charts correctly and draw an accurate conclusion from them.
So does this rule imply F & O also? The answer is yes. There are 6 powerful Data points that every trader must know when dealing with Futures and Options.
Let us understand them one by one:
1. Option Chain: It is a list that shows all of the available option contracts for specific security, together with their unique features. The list displays all available calls and puts for a specific contract inside a given maturity period, along with their expiration, strike prices, volume, Open Interest, Greeks, and pricing information. An option chain is a trader's favorite tool for analyzing the market and trading faster.
There are two parts to an option chain: calls and puts. A call option allows you to buy a stock, whereas a put option allows you to sell a stock. The premium, which is the upfront charge payable by an investor for purchasing an option, is the price of an options contract.
2. Option greeks: The Options Greeks are important risk management tools that can assist option traders in making accurate decisions about what to trade and when to trade. They aid in determining how price fluctuations, interest rate changes, volatility, and time affect the price of an option contract.
3. FII and DII Data: FII refers to an investment fund or an investor based outside of a country who makes investments in the assets of that country. This is a commonly used term in India to refer to international companies that invest in the country's capital markets. On the other hand, DII stands for "domestic institutional investor."
Traders can use the Sankey Chart to visualize the flow of FII and DII money. The FII/DII Analysis results provide a clear picture of daily cash inflows and outflows from these investors. Green streams have positive net inflows, whereas red streams have negative net outflows.
4. Global indices serve as a yardstick for assessing the overall market's strength or weakness. Typically, an index is created by selecting a subset of highly liquid and valuable stocks from the universe of publicly traded stocks.
Investors and analysts can use these indexes to describe the market and compare different investments. To provide investors with exposure to a specific need, several mutual funds and exchange-traded funds (ETFs) aim to track these indexes. Global indexes, regional indexes, and local indexes are the three most frequent forms of indexes.
5. Heat Map: A heat map is a useful color-coded map that displays what's hot and what's not right now in the market.
LBU - A long buildup occurs when price and OI rise, indicating that more investors anticipate a price increase and take long positions.
SBU - A short buildup occurs when the price falls and the OI rises, indicating that more people expect the price to fall and take short positions.
SC - A short covering occurs when the price rises and the OI fall, as rising prices compel short sellers to close their bets.
6. Open Interest Analysis: Open interest is a particularly powerful data element in futures and options.
For this call, open interest tells us how many contracts are available and live, that is, how many contracts are outstanding in the market due to delivery/settlement or trader discretion. Until the counterparty ends the contract, it is called "open."
So, the above six points are crucial to understanding the future and options market. If you are involved in future option trading, you should understand all these points, and they must all be crystal clear. If you fail to interpret any of the above, you may mislead the data, resulting in adverse results.