What is Call Unwinding? Best Explanation with Example 2021

When People start investing or try to learn the stock market many new terms they hear for the first time. Many of these are literally confusing like calls, put, unwinding etc. In this post we will discuss What is call unwinding?

However, to discuss call unwinding we need to understand many other terms to clear to your doubts regarding call unwinding.

Introduction

Everyone knows that the F & O segment is quite difficult to understand. There are many people who never touch this segment even if they are working in the stock market.

The complexity is the main hurdle for the people who wish to enter this section. Many people fail to understand terms like calls writing, put writing, unwinding, etc.

So let’s start with unwinding. After that we will discuss call writing and what is call unwinding?

What is Unwinding?

The term “unwinding” refers to the process of closing out a trading position in the stock market. It is most often utilized when the trade is complicated or having big numbers. Unwinding is also used in the process of fixing a trading mistake. In those cases, it may be complicated and involve several actions or trades.

When buying or selling happens in many transactions rather than just one, the word “unwinding” is more commonly used.

Example

Unwinding by Investor

The major action taken by an investor for unwinding is to sell the security in a call Option. To unwind a Put Option, an investor will need to purchase the short stock back.

Unwinding due to mistake

If a broker may sell part of a position that an investor intended to add to. The broker will have to unwind the trade by first acquiring the sold stocks and then acquiring the stocks that should have been bought initially.

What is Call Unwinding?

When a trader sells it’s position in a call option it is called as a call unwinding. This can happen due to any news or might the price of that call option hit the target for which a trader was looking for.

Other possibilities for call unwinding is a due to error while writing the call or adding more lots in a call option. You can find the daily data just by Clicking Here. Let’s also understand it with an example.

Originally published at https://profitmust.com on May 6, 2021.