I am not able to get technical/logical reason behind following scenario. Can you please help me to explain the reason behind it?
Group of stocks makes the index. It means Index is dependent on stocks, right? Index future is dependent on Index. Also, Index PUT & CALL options are dependent on Index.
When we say there is short covering in CALL options, then index moves upwards.
And when there is long unwinding in PUT options, then index moves downwards.
I’ve heard this, and also experience this.
But how index PUT and CALL options writing/unwriting affects index ( internally stock prices)? Index and PUT/CALL options are separate entity. There can be premium/discount compared to index. But how they can affect index price?
I’m not able understand technical/logical reason behind it.