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Short Covering

Position SHORT COVERING-INDEX OPTION

Options

Futures

Calls

Puts

Symbol
Strike Price
Prev OI
Curr. OI (%Chg)
LTP (%Chg)

26,350.00

7,71,750

6,62,475

(-14.16%)

0.6

(20%)

23,900.00

3,000

2,100

(-30%)

1,202.15

(0.58%)

Position SHORT COVERING-STOCKS OPTION

Options

Futures

Calls

Puts

Symbol
Strike Price
Prev OI
Curr. OI (%Chg)
LTP (%Chg)

820.00

3,17,000

3,16,000

(-0.32%)

0.35

(16.67%)

127.50

14,71,100

14,66,400

(-0.32%)

6.45

(0.78%)

1,220.00

1,71,450

1,70,775

(-0.39%)

0.6

(20%)

270.00

7,74,000

7,71,000

(-0.39%)

23

(0.22%)

62.00

98,64,000

98,24,000

(-0.41%)

0.4

(14.29%)

606.65

1,90,800

1,89,900

(-0.47%)

8.75

(18.24%)

1,640.00

87,300

86,850

(-0.52%)

25.6

(85.51%)

570.00

3,87,450

3,85,400

(-0.53%)

0.25

(25%)

385.00

3,76,650

3,74,625

(-0.54%)

19.5

(5.98%)

109.00

11,07,000

11,00,250

(-0.61%)

4.8

(26.32%)

515.00

3,02,950

3,00,875

(-0.68%)

1.05

(5%)

1,010.00

1,63,750

1,62,500

(-0.76%)

43.8

(19.84%)

300.00

24,79,675

24,60,625

(-0.77%)

1.85

(32.14%)

242.50

5,57,750

5,53,288

(-0.8%)

3

(22.45%)

5,000.00

58,500

58,000

(-0.85%)

371.9

(31.3%)

1,340.00

1,23,750

1,22,650

(-0.89%)

19.6

(42.55%)

670.00

1,10,000

1,09,000

(-0.91%)

33.9

(1.19%)

2,680.00

23,175

22,950

(-0.97%)

1.9

(26.67%)

350.00

1,36,350

1,35,000

(-0.99%)

47.4

(0.21%)

125.00

18,37,700

18,18,900

(-1.02%)

8.7

(3.57%)

450.00

9,71,100

9,60,700

(-1.07%)

0.55

(37.5%)

56.00

28,80,000

28,48,000

(-1.11%)

2.85

(23.91%)

101.00

6,88,000

6,80,000

(-1.16%)

8.4

(18.31%)

1,660.00

74,700

73,800

(-1.2%)

19.3

(88.29%)

540.00

14,00,000

13,83,000

(-1.21%)

8.9

(44.72%)

220.00

12,87,900

12,71,700

(-1.26%)

2.45

(28.95%)

600.00

10,56,250

10,42,500

(-1.3%)

1.9

(72.73%)

60.00

3,08,16,000

3,04,00,000

(-1.35%)

0.8

(23.08%)

300.00

2,11,500

2,08,500

(-1.42%)

33

(2.33%)

1,260.00

14,80,450

14,59,425

(-1.42%)

23.7

(7.48%)

252.50

2,09,375

2,06,250

(-1.49%)

1.95

(21.87%)

250.00

22,62,500

22,28,125

(-1.52%)

2.4

(17.07%)

3,300.00

1,60,600

1,58,125

(-1.54%)

5.75

(18.56%)

660.00

51,200

50,400

(-1.56%)

55.5

(20.65%)

3,050.00

1,21,275

1,19,350

(-1.59%)

18.3

(5.48%)

19.00

1,95,30,800

1,91,88,700

(-1.75%)

2.15

(7.5%)

390.00

33,59,650

32,98,750

(-1.81%)

6.2

(8.77%)

260.00

1,65,000

1,62,000

(-1.82%)

32.55

(0.62%)

250.00

62,15,625

60,89,850

(-2.02%)

1.2

(4.35%)

90.00

18,94,400

18,56,000

(-2.03%)

0.7

(133.33%)

355.00

11,46,800

11,23,300

(-2.05%)

0.3

(20%)

1,500.00

2,77,875

2,72,175

(-2.05%)

75.2

(8.91%)

106.00

16,40,250

16,06,500

(-2.06%)

7.4

(20.33%)

6,000.00

4,800

4,700

(-2.08%)

1,205

(5.28%)

120.00

18,00,100

17,62,500

(-2.09%)

13.15

(0.38%)

1,070.00

2,06,875

2,02,500

(-2.11%)

9.95

(20.61%)

5,300.00

1,21,375

1,18,750

(-2.16%)

139

(63.43%)

2,100.00

22,750

22,250

(-2.2%)

184.35

(9.18%)

593.35

1,17,900

1,15,200

(-2.29%)

14.95

(16.34%)

325.00

49,03,350

47,89,375

(-2.32%)

7.3

(1.39%)

44,000.00

1,935

1,890

(-2.33%)

1,083.65

(7.72%)

2,400.00

1,80,050

1,75,825

(-2.35%)

51.1

(8.61%)

420.00

37,07,600

36,20,500

(-2.35%)

2.8

(43.59%)

3,900.00

2,02,200

1,97,400

(-2.37%)

74

(2.35%)

132.50

9,33,675

9,11,550

(-2.37%)

4.5

(16.88%)

7,600.00

16,700

16,300

(-2.4%)

557

(31.14%)

200.00

4,42,800

4,32,000

(-2.44%)

13.95

(21.3%)

1,200.00

1,01,500

99,000

(-2.46%)

2.1

(20%)

257.50

1,25,000

1,21,875

(-2.5%)

1.15

(21.05%)

61.00

31,52,000

30,72,000

(-2.54%)

0.55

(22.22%)

1,850.00

10,725

10,450

(-2.56%)

202.5

(27.16%)

1,400.00

86,850

84,600

(-2.59%)

1.5

(3.45%)

720.00

11,44,000

11,14,000

(-2.62%)

12.6

(19.43%)

1,060.00

2,72,250

2,65,100

(-2.63%)

50.95

(4.19%)

3,050.00

14,250

13,875

(-2.63%)

265.3

(44.93%)

8,700.00

39,750

38,700

(-2.64%)

385

(0.59%)

2,020.00

48,750

47,450

(-2.67%)

9.7

(2.65%)

195.00

40,45,000

39,35,000

(-2.72%)

4.05

(22.73%)

120.00

15,64,000

15,21,500

(-2.72%)

9.35

(23.84%)

573.35

32,400

31,500

(-2.78%)

29.8

(13.96%)

195.00

96,250

93,500

(-2.86%)

20.85

(8.03%)

110.00

84,03,750

81,60,750

(-2.89%)

4.05

(30.65%)

104.00

21,68,000

21,04,000

(-2.95%)

5.45

(19.78%)

1,060.00

2,70,675

2,62,575

(-2.99%)

50.6

(2.53%)

2,800.00

2,15,600

2,09,000

(-3.06%)

156.9

(6.92%)

1,660.00

56,000

54,250

(-3.13%)

15.4

(118.44%)

810.00

1,76,800

1,71,200

(-3.17%)

83.1

(68.22%)

3,300.00

87,200

84,400

(-3.21%)

129.05

(112.6%)

1,400.00

3,86,250

3,73,500

(-3.3%)

41

(37.82%)

930.00

46,500

44,950

(-3.33%)

53.05

(15.83%)

1,620.00

54,000

52,200

(-3.33%)

33.8

(85.21%)

220.00

37,96,650

36,67,950

(-3.39%)

20.5

(7.61%)

1,280.00

10,49,075

10,13,550

(-3.39%)

16.9

(3.05%)

400.00

19,62,225

18,95,400

(-3.41%)

9.55

(8.52%)

505.00

3,00,875

2,90,500

(-3.45%)

2.1

(31.25%)

370.00

3,52,350

3,40,200

(-3.45%)

27

(2.08%)

2,650.00

23,650

22,825

(-3.49%)

287.3

(1.29%)

585.00

5,07,150

4,89,300

(-3.52%)

4.85

(15.48%)

105.00

67,84,000

65,44,000

(-3.54%)

4.65

(22.37%)

190.00

2,10,000

2,02,500

(-3.57%)

15.3

(17.69%)

112.50

7,17,600

6,91,600

(-3.62%)

6.7

(4.69%)

310.00

14,06,500

13,55,575

(-3.62%)

17.35

(5.47%)

113.00

29,70,000

28,62,000

(-3.64%)

2.15

(38.71%)

780.00

9,87,000

9,51,000

(-3.65%)

22.35

(51.53%)

1,330.00

96,000

92,500

(-3.65%)

74.6

(4.78%)

780.00

2,04,750

1,97,250

(-3.66%)

48.6

(4.74%)

570.00

12,61,050

12,14,850

(-3.66%)

10.6

(26.95%)

4.00

37,16,700

35,73,750

(-3.85%)

4.25

(16.44%)

710.00

2,72,125

2,61,625

(-3.86%)

23

(13.86%)

100.00

45,02,250

43,26,750

(-3.9%)

13.05

(12.99%)

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Premium

Discount

Script
Spot
Future
Premium(%)

TATACONSUM

1,103.00

1,103.50

0.04%

ICICIGI

1,898.10

1,899.10

0.05%

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4,657.40

4,660.10

0.05%

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6,063.50

6,068.00

0.07%

BDL

1,601.70

1,603.00

0.08%

What is Short Covering?

Short covering is also known as "buying to cover," a technique used by investors in order to close an outstanding short position in the stock market. During this, they will purchase shares, which they initially borrowed and sold short; after buying, they return the shares to the lender. The main purposes of short covering are to realize profits or cut losses from a short sale. In a short sale, an investor borrows shares of a stock he or she thinks will decline in value, immediately sells them at their current market price, and buys them back later at a lower price to return to the lender.

Short covering is significant because it is the method by which the investor returns borrowed shares. It can also impact market dynamics; the heavy covering of shorts could mean higher demand for a stock, thus driving up the price of that stock. That may be the juncture where the "short squeeze" occurs, and higher prices will then force further shorts sellers to cover their positions.

How Does Short Covering Work?

The process of short covering involves a series of steps subsequent to the initial act of selling short. First, an investor borrows some shares from a broker and sells them in the market, anticipating that the price of the stock will fall. When the price falls, they buy back that number of shares at this low price to cover their position. This process is called short covering.

In case of a fall in stock price, the investor gets the difference between the amount for which they sold it originally and the repurchase amount. If the stock price increases instead of going down, then the investor is at risk. To cut down such loss, investors may opt to cover the short position by buying back the shares at an even higher price in order to avoid further financial loss.

This takes place when many investors are covering their shorts, placing upward pressure on the stock price, giving rise to what is called a short squeeze. A short squeeze occurs when a short seller is forced to purchase shares at an increasingly higher price due to margin calls or rising market conditions.

Example of Short Covering

Now, let's consider an example. Assume that Rohan thinks the stock of ABC Ltd., listed on the NSE, is overvalued and will plummet from its current market price of ₹1,000 per share. Rohan borrows 100 shares from his broker and then sells them at ₹1,00,000 (100 shares x ₹1,000). After some time, ABC Ltd.'s stock price falls to ₹700 per share. To close his position, Rohan buys back 100 shares at ₹ 70,000 (100 shares × ₹ 700) and returns to the broker. This yields him a profit of ₹ 30,000 (₹ 1,00,000 - ₹ 70,000).

However, if ABC Ltd. stock had risen instead, say, to ₹1,200 per share-Rohan would incur a loss if he decided to cover his position at that point. Buying back 100 shares would cost him ₹1,20,000 (100 shares x ₹1,200), thereby incurring a loss of ₹20,000 (₹1,00,000 - ₹1,20,000). Here, Rohan saves himself from further losses beyond this point by covering his short position at this point when the prices continue to rise.

FAQs

What does short covering indicate?

downArrow

Short covering indicates that investors are closing their short positions by buying back borrowed shares. This action often reflects a change in market sentiment, where traders anticipate rising prices or want to limit potential losses from their short sales.

Is short covering bearish or bullish?

downArrow

Short covering is generally considered a bullish indicator. It occurs when traders buy back shares to close short positions, often leading to increased demand and upward price movement, although it may not signal a sustained bullish trend.

What is short covering vs long covering?

downArrow

Short covering involves buying back shares that were sold short to close a position, while long covering refers to selling shares that were previously bought to realize profits. Both actions impact market dynamics but represent opposite trading strategies.

Does short covering increase the price?

downArrow

Yes, short covering can increase a stock's price. When many investors buy back shares simultaneously to close their short positions, it creates upward pressure on the stock, potentially leading to a price spike known as a short squeeze.

How to find short-covering stocks?

downArrow

To find stocks experiencing short covering, monitor indicators like decreasing open interest alongside rising prices. Additionally, observe sudden spikes in trading volume and changes in the short interest ratio, which may suggest increased buying activity.

What is short covering in OI analysis?

downArrow

In open interest (OI) analysis, short covering is identified by a decrease in OI coupled with rising prices. This indicates that traders are closing their short positions, which can signal a potential reversal or bullish momentum in the stock.

What is a short covering example?

downArrow

An example of short covering involves an investor who shorts shares at ₹1,000. If the price drops to ₹700, they buy back the shares for a profit. Conversely, if the price rises to ₹1,200, they must cover their position at a loss.

What is a short covering bounce?

downArrow

A short covering bounce refers to a temporary increase in a stock's price due to investors buying back shares to cover their shorts. This often occurs after prolonged declines and can lead to rapid price increases as demand surges.

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