HOW DOES COST OF CARRY REPRESENT BULLISHNESS OR BEARISHNESS?

Change in CoC seen along with open interest shape a clear picture of broader sentiment for the
stock or index. Open interest is the total number of open positions in a contract. For a rising OI,an
increase in CoC indicates accumulation of long(or bullish) positions, while an accompanied fall in the
CoC indicates addition of short positions and bearishness. Likewise, a fall in OI,accompanied with a
rise in CoC, indicates closure of short positions. A falling both OI and CoC indicates that traders are
closing long positions. Analysts also observe changes in CoC at the expiry of derivatives contract. If a
significant number of positions are rolled over with a higher cost of carry,it implies bullishness.

CAN COST OF CARRY BE NEGATIVE?

Yes. When futures trade at a discount to the underlying, the resultant cost of carry is
negative. This usually happens for two reasons: when the stock is expected to pay a
dividend,or when traders are aggressively executing a “reverse arbitrage” strategy,
which involves buying spot and selling futures. Negative cost of carry points to
bearish sentiment

How is CoC calculated?

Theoretically, Future price fair value=Spot Price+Cost of Carry-Dividend Payout Cost
of Carry = Difference between the futures and spot price at any time

CoC is calculated as an annual rate and expressed in percentage values