An Insightful Research Tool For Derivative Analytics

A “Derivative” is a financial instrument that derives its value from an underlying financial instrument. Futures and Options are the two most commonly traded derivatives around the globe. Futures are standardized financial contracts traded on the stock exchange that create a binding agreement between two parties to exchange an asset at a predetermined price on an agreed date in the future. Options refer to those derivatives that give the right but not the obligation to buy or sell an asset at a specified exercise price on a future date.

Derivatives analysis cannot be underestimated since it provides critical information about the derivatives market. Still, that information can extract valuable insights about the equity or underlying instrument. For instance, ‘Open Interest’ defines the total number of open or outstanding contracts presently held by the market participant at a given time. Open Interest analysis helps in the identification of stock market trends.

At StockEdge, we are introducing ”Derivative Analytics”, a new section under premium analytics for our paid users which will help them further analyze the derivative and stock markets. This section is further divided into two separate sections for Futures and Options. We have also introduced an Open Interest analysis section on the stock page to analyze a stock further. For example, you can analyze the daily Open Interest trend for the last 60 trading days.

Futures Analytics

Under Futures, for all the available stocks in the derivatives market we are providing our users with the following information:-

1) Spot Price: Here we are showing the last trading day’s close price of the stock and the % change in price since the previous trading day.

2) Cumulative Future Open Interest: Cumulative Open interest and its change give a complete and holistic picture of the market trend and tell us about the major support and resistance levels. The % change in Cumulative interest shows the change since the last trading day.

3) Volume and Delivery: This field helps us to identify when the OI trend is aggressive or not. A stock is said to be aggressive when the increase in volume and delivery quantity since the last trading day is greater than the average change in the last 5 trading days.

4) Open Interest Trend:-  Open interest tells the user about the strength of the trend and whether the market trend will continue or gain momentum in the near future. The OI trend is based on the changes and trends shown by spot price, open interest and volume & delivery quantity. We have given the following OI trend for each stock:

1. Aggressive New Long: Traded and delivered quantity has increased in comparison to the average traded and delivered quantity for the last 5 trading days along with an increase in Cumulative Open Interest and price for the underlying stock have increased. Thus it is a strong bullish indicator.
2. New Long: Increase in cumulative open interest and price of the underlying stock. This is a bullish indicator.
3. Aggressive New Short: Traded and delivered quantity has increased in comparison to the average traded and delivered quantity for the last 5 trading days along with an increase in Cumulative Open Interest for the underlying stock whereas the price has decreased. Thus it is a strong bearish indicator.
4. New Short: Increase in cumulative open interest and decrease in the price of the underlying stock. This is a bearish indicator.
5. Aggressive Long Cover: Cumulative Open Interest and price of the underlying stock have decreased whereas the Traded and delivered quantity has increased in comparison to the average traded and delivered quantity for the last 5 trading days. It signifies people who were holding a long position on the stock have decided to close their position aggressively.
6. Long Cover: Decrease in cumulative open interest and price of the underlying stock. It signifies people who were holding a long position on the stock have decided to close their position.
7. Aggressive Short Cover: Cumulative Open Interest has decreased whereas price has increased as well as Traded and delivered quantity has increased in comparison to the average traded and delivered quantity for last 5 trading days . It signifies people who were holding a short position on the stock have decided to close their position aggressively. 
8. Short Cover: Decrease in cumulative open interest and increase in the price of the underlying stock. It signifies people who were holding a short position on the stock have decided to close their position.

Options Analytics

Under Options, for all the available stocks in the derivatives market we are providing our users with the following information:-

1. 1 Month Sparkline Chart: It is a line chart depicting the trend in the spot price of the stock over the last 1 month.

2. Put Call Ratio: It is an important technical indicator showing the overall market sentiment for a stock. It is a simple ratio by dividing the number of  Put options traded by the number of call options traded. Put Call Ratio (PCR) measures the ratio of the put open interest on a given day to the call option open interest on the same day. A High Put call ratio usually signifies that the stock is nearing a support level while a low Put-Call ratio is indicative of the stock nearing a resistance level.

3. Change in Put Call Ratio: It is the absolute change in the put-call ratio since the last trading day. A high increase in Put Call Ratio indicates that the traders are creating more positions in the puts than calls and vice versa.

4. Spot Price and %Change in Spot Price: Spot price is the last trading price at the close of the last trading day and the % change is calculated from the previous trading day’s last traded price.

Derivative Analytics is an insightful analytical tool which is critical for conducting research on Derivatives. At StockEdge, we have always believed in improving the user experience and providing financial literacy to all our users. The introduction of Derivative Analytics is just another step towards our long term goal of financial literacy for everyone.

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