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Short Selling in Intraday Trading

Hello Everyone,

Welcome to this educational series, I hope you have been following the previous post.

Today, we are going to discuss an important aspect in Intraday Trading and this is ‘Short Selling.’

Traditionally we buy stocks at a low h price and then sell them later at a high price, this is done when the market is bullish or prices are increasing. I have interacted with a lot of traders, who believe that trades can only be placed in a bullish market and they shouldn’t do any trading in a bearish market. Obviously, they were unaware of a particular strategy called Short Selling, until I told them so.

Short selling is a strategy used when you expect a security’s price will decline. This is generally done in a bearish market when stock prices are continuously falling. To short sell, you sell shares of a security that you do not own, which you borrow from a broker. After you short a position via a short-sale, you eventually need short covering to close the position, which means you buy back the shares later and return those shares to the broker from whom you borrowed the shares. You can make a profit from short selling if you buy back the shares at a lower price.

Example of Short Selling: A trader believes that Stock ABC, which is trading at Rs. 100 per share is on a decline today, as the company announced its annual earnings and the numbers were not so impressive. Therefore, the trader places an order to short 1000 shares to his broker. So now the investor “shorts” 1000 shares of Stock ABC which he did not own with hopes that the share price will decline.

A few minutes later, Stock ABC’s price falls to Rs. 95 per share after others start selling the stock. The trader decides to close the short position, so he buys back 100 shares of Stock A from the open market at a price of Rs. 95 per share and returns those shares to the broker; this is called ‘short covering’. Therefore, the trader makes a profit of Rs. 5 per share which is a total of Rs. 5000 for the whole transaction.

If the stock price starts to rise to a level of Rs. 105, instead of declining. The trader decides to close his position at Rs. 105, he will incur a loss of Rs. 5000 for the 1000 shares

Read More

[ibullsmumbai-blog]

What’s wrong with the average Indian trader/investor?

I have been trading in the stock markets since the past 5 years and there hasn’t been a single day when I wasn’t fascinated by one thing or the other, that the market has to offer. I thoroughly enjoy relating everyday principles with that of the stock market. This has helped me in fine-tuning my understanding of the very basic principles of how the market functions. Price movement is one such topic that I am going to discuss today. Admit it; we have all been anxious at some point of time, by looking at the prices of stocks going up or down. A favorable movement in price was greeted with a fist pump and every unfavorable movement was frowned at. Now, let’s have a look at a trading snapshot of Bharti Airtel

We can see 6 prices in the uppermost row; Last Traded Price 346.80, Prev. Close 340, Open 341.70, High 351.25, Low 337.15, Close,

Do you notice a pattern here? All the prices move in multiples of Rs. 0.05 or 5 paise, which is also called the tick size. This implies that if you want to buy a stock of Bharti Airtel, you can place a buy order at either Rs. 346.80 or Rs. 346.85.

The rationale behind keeps the tick size as small as 5 paisa is to minimize the risk in case of a knee jerk price fluctuation. Suppose, you bought 1000 stocks of Bharti Airtel at Rs. 346.80 and you notice bearish sentiment wouldn’t it be wise to exit your position at Rs. 346.70 or Rs. 346.50. This will result in a loss of Rs. 100 or Rs. 300.

Now imagine, what would have been the consequences if the tick size was Rs. 1? Yes, that would’ve been very risky.

How do I picture this price movement in my mind? I guess, every one of us has traveled in a passenger train, that stops at every possible station between your origin and destination The price movement of stock in a consolidated market is similar to that of a passenger train, hauling slowly but steadily. The price movement in a bullish or bearish market is similar to that of an express train, stopping only at important stations and taking less time

And now, try to apply the concept of demand and supply on the price.

I hope you’ll be able to connect the dots here, if not we’ll take this up in the next blog.

[ibullsmumbai-blog]

The range-bound nature of Capital Market!!

Markets Trading in a Range of 200 Points between 11550-11750 The market is trading in a range of 200 points between 11550-11750. By carefully observing the FII & PRO data this week, we can clearly, infer that the FII & PRO combined are being net buyers on one day and sellers on other days, which suggests that they are changing their stance every alternate day. Hence, we conclude that the market is in range. However, breaking the range on either side with Open Interest Data confirmation will be a trendsetter for the market. From the above table, it is clearly visible that on 2nd April, FII & PRO combined bought 52661 contracts but sold 102033 contracts on the very next day. This trend continued till yesterday and hence the trend is not clear. Sectoral Analysis: Yesterday Pharma, Energy, Chemicals and Banking sector was up by 0.42%, 0.40%, 0.37%, and 0.33% respectively. This Sector has continued its rally since 19th February 2019. It has been seen that the Chemical sector is the top performing sector to date around 9.04%. Whereas, Energy, Banking, Pharma sectors also continued its rally by 7.65%, 6.68%, and 3.24% respectively since 19th February 2019. Yesterday in the Pharma sector, Marksans Pharma was up by 2.43%, JB Chemicals & Pharmaceuticals were up 2.31%.                                                                           Open Interest Analysis: FII & PRO are the major players in the Derivatives segment and have an upper hand in the market whose position provides direction to the market. In the current expiry, they have started with the position of 67472 contracts in Index option (both FII & PRO combined) when the spot was trading at 11570. On 9th April they have created a long position of 101678 contracts and had Net Open Interest the position of 51388 contracts in the current expiry. IB VIEW: As it is clear by FII & PRO that the market is particularly a range-bound entity right now moving in between the levels of 11550-11750 So both bulls and bears will be seen in the trading sessions as it is rangebound there is no control over direction.

[ibullsmumbai-blog]

Jet had also made commitments to its lessors and vendors for clearing of dues - this has been delayed as funds are yet to flow in

Lenders to cash-strapped Jet Airways likely to rework resolution plan

The lenders of debt-ridden Jet Airways might have to rework the earlier resolution plan, which would have given them a combined 50 percent stake in the airline for a rupee.

The plan was framed under the Reserve Bank of India’s February 12, 2018 circular, set aside by the Supreme Court (SC) on Tuesday.

Jet did not officially react to the SC judgment. Sources say it is taking legal opinion on the implications. State Bank of India Chairman Rajnish Kumar said the lenders were examining the judgment to assess the impact.

Last week, Jet Airways' board approved the resolution plan to issue 114 million shares to lenders for Rs 1.

This would give them 50 percent control in the airline, diluting the stake of Chairman Naresh Goyal.

Goyal and wife Anita quit the board last week, as part of the agreed resolution process. The lenders had also agreed to provide interim funding of Rs 1,500 Cr to the airline.

Jet had made commitments to its lessors and vendors for clearing of dues which are now being delayed as funds are yet to flow in. Also, its pilots are demanding that a substantial portion of the interim funding be released as salaries.

A senior public sector bank executive said, "Jet's lenders had applied the one-day default criterion (under the RBI circular) for initiating the resolution process. With the SC scrapping the circular itself, we might have to re-look at the issue of converting debt into equity and the other proposals which were under discussion. As of now, we do not know how much stake lenders will take in the airline.”

Section 53 (2A) of the Companies Act allows “issue of shares” at a discount upon conversion of a company's debt under a statutory resolution plan or a restructuring scheme under banking regulations. This would include salvage plans under the Insolvency and Bankruptcy Code (IBC). The lenders are keen to get an investor in the airline by end-May. Banks do not want to take the airline to the National Company Law Tribunal under the IBC; they say they are confident of attracting a buyer.

IB VIEW – As the company is facing serious internal crises, it will take time recover, thus we recommend traders to sell the stock.

[ibullsmumbai-blog]

Park your money smartly

When it’s about playing safe in Capital Market, the evergreen attempt is to invest in blue-chip companies but when you decide to get out of your comfort zone to make the most out of the Market and start giving consideration to other market caps as well, you got to be very cautious by paying heed on a few crucial factors.

The equity market is all stormed by the pre-election rally, backed by the assumption of a stable government after the election. It seems that it’s an attempt to draw level with the global market through this run-up. Stable rupee, smooth liquidity condition in the domestic money market and expectations of further interest rate action by the RBI are backing the market to a greater extent.

As the money flowing in through the SIP route, mutual fund inflows have also leaked in quite harmoniously most of the times. People’s take on the future performance is majorly driving retail investors' advances towards fresh investments in the markets, rather than the liquidity. Also, the shilly-shallying will be staying for quite some time due to the election winds blowing high.

Due to the efforts being put over further capitalization, recognition of NPAs and also with the mergers and consolidations being at hand, PSU banking space has become more welcoming now. With the growing credit growth, improving liquidity conditions, and the altering bearing of the RBI’s policy have all helped the banks to reinvent and hunt down their business further.

All the important segments have been encouraging buying of stocks. Though this trend is more active in the banking and IT sectors but saying that its limited to that would still be wrong as its having a broader reach. The rupee is becoming robust putting the 68.60 level under trial due to the huge inflows from FIIs into the equity markets in the last couple of months. This is also facilitated by year-end repatriations by corporates and exporters.

After the fall faced in the last two years, the Real estate market is yet to catch pace in towns and cities of prime importance. And the catalogue is big enough in the metro cities to result in two more years of compensation.

Procurement of stocks is driven either by the two major interests, either for their value or for the growth they bring in whereas investment in equity is more of a long term take than a short term one. It is also important to understand that some of the stocks that have jumped up considerably high can be seen at profit booking levels while others could be accumulated further. This differs from stock to stock.

[ibullsmumbai-blog]

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