Market Wide Position Limit (MWPL) is a key parameter in analysis of stock F&O. At the end of each day the Exchange disseminates the total OI (open interest) across all Exchanges (NSE, BSE, MCX) in the F&O on individual stocks along with the MWPL for that scrip. If the aggregate OI for any scrip exceeds 95% of the MWPL for that scrip, then the scrip goes into ban in F&O.
In this case, no fresh contracts are allowed in the F&O segment for this scrip. Only square-offs are allowed in that scrip, which in turn helps in reducing the aggregate OI. The normal trading in the scrip is resumed only after the aggregate OI comes down to 80% or below of the MWPL.
Monitoring OI% of MWPL helps to track those stocks which are near their MWPL limit or witness sudden spurts in %MWPL as traders will look to offset positions to prevent the security from going into the ban period. Recognizing this information, investors can make informed decision beforehand on whether to go long or short in a stock near the 80% – 90% of the MWPL level.
The closeness of this parameter to the 95% threshold will imply that only square-offs will take place in that particular scrip. This should imply long unwinding or short covering for the stock in near term. The stock price should remain depressed as a result. Thus suitable trading strategies can be built to capture alpha from this event.
MWPL Case Study : Amtek Auto Ltd.
Amtek Auto (NSE: AMTEKAUTO, BSE: 520077) is headquartered in New Delhi, India and is one of the largest integrated automotive component manufacturers in India with a strong global presence.
We highlight a case study for Amtek Auto. On 2nd June 2015, the future markets dashboard of Heckyl F&O platform indicated that % MWPL was 100.03%, which was more than 95%.
This clearly implied that the stock will go into “ban” on 3rd June 2015 and only square-offs are allowed in this particular scrip. This will result in short covering or long unwinding. As a result, the price will remain depressed and will not go up. So appropriate trading strategy can be built to capture this event. This can either involve short selling the stock or buying the put of suitable strike price.
As expected, the future price was down by 2.2% at 11:15 a.m. on 3rd June as observed from the 15 Minutes Built-up Dashboard.
The stock was further down around 8% by 12:15 p.m. as expected. This clearly indicates that building suitable trading strategy based on MWPL levels would have helped a trader to make money in the market.
The F&O solution of Heckyl is available on its Platform , FIND or Financial in News and Data. FIND’s F&O tools can help a trader to make profitable trades on-the-go in the market. To know more, mail us at firstname.lastname@example.org.