InvestorQ : What can I glean as a trader / investor based on the spreads creation data on the futures and options market?
Ria Jain made post

What can I glean as a trader / investor based on the spreads creation data on the futures and options market?

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Arti Chavan answered.
1 year ago
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This is a slightly more tricky technique of identifying trends in the F&O market. Typically, institutions and traders, at times, do not want to bet on the direction of any sector. Then they resort to spreads. In a spread, you bet that one sector will outperform the other sector. Take the case of banking sector currently. There is a strong expectation that the RBI will cut rates by 25 basis points when it meets on April 05. However, being an uncertain variable nobody wants to take a directional bet on the same. Hence if you look at the accumulation data there is a clear accumulation of long positions in the Bank Nifty and short positions in the Nifty. This strategy is profitable if the Bank Nifty performs better than the Nifty. For example if Nifty gives 5% return and Bank Nifty gives 7% return, you still end up making a 2% profit. On the other hand, if Bank Nifty is down 4% and Nifty is down 7%, and then you still make a profit of 3%. Such trends are again available on a real time basis on the NSE website.

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