how does short covering in index option brings up stock values. is there any corelation?
I will put it the way I understand
If index option prices move and index futures do not then there is arbitrage gain
If index futures move and stock futures don’t move, then again there is arbitrage gain.
If stock futures move and stock spots don’t, there is again a possibility for arbitrage gain.
So yeahhhh… Thats the way I understand.
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but can trading index options or future move underlying stocks ?
Underlying stocks have to move when futures move right.
Imagine reliance futures move to 2400 and at spot its still at 2200. I would buy in cash and sell in futures. So spot prices have to move.
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Hey, even I have the same question. To elaborate what @Vedant_Patel1 asked,
- Index comprises of 50 stocks.
- Short Covering in index futures / options means that there should be short covering in the underlying 50 stocks.
The question here is, when there is a short covering happening on the index, does it mean that short covering will happen on the underlying stocks too?