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Open Interest
What is Open Interest?
Open Interest is the total number of outstanding (Derivative) Futures & Options contracts. As the word Open Interest suggests, it is the amount of interest in any derivatives contract. It is different from volume.
Benefits of Open Interest
Open Interest gives trades insights about support & resistance levels. It gives an indication of a trend or a reversal.Options Open interest is one of the most vital derivative data points used for analysis of the markets
How to interpret Open Interest Data
Option Open interest is interpreted in a number of ways. Though every Call or Put contract has both Buyer & Seller, Options OI Data is inferred from the Option Sellers Perspective. This is because Option Sellers take more risk (unlimited loss risk) than the buyer (limited loss)
- Call Writers view: Underlying neutral to bearish
- Call Writers view when unwinding: Underlying scaling higher
- Put Writers view: Underlying neutral to bullish
- Put Sellers view when unwinding: Underlying edging lower
Trends from Open Interest Data
Observation
- When the market price is close to the strike price & there is change in open interest on that strike price
- The stock/underlying has not moved much
- There are no earnings, announcements, events lined up for the underlying
Conclusion
- If we see the above data building up, usually if its a Call Option, the underlying rallies
- If in the same case, its a Put Option then the underlying usually is seen moving lower.
Support & Resistance from Open Interest Data
Observation
- Check where the Highest Call Option Open Interest & Put Open Interest is placed
Conclusion
- Oftentimes the Highest Open Interest among Calls is in the strike higher than the current market price of the stock/index that belongs to and for Puts it is the strike lower than the current market price.
- Basic premise here is that more Open Interest = More Writers and More Writers = Consensus over their strike being held and not crossed over.
- Utility is very simple. If our price objective is beyond this band of Highest Call/ Put strike, it makes sense to rethink our trading objective.
- These are some of the known and most used inferences of options Open Interest data. This could be helpful in identifying a trading opportunity as well as supporting a trading argument.
Features in GO PRO/PRO+ Plans: Change in Open Interest from Custom Time
Get changes in Open Interest from a specific time in the day (up to the minute). This will help you track changes in Open Interest after a specific event, large move in the underlying.
How to Buy PRO/ PRO+ Plan?
- Step 1:- Sign Up your account with web.quantsapp.com
- Step 2:- Click on GO PRO/PRO+ text highlighted on the top right corner
- Step 3:- Select PRO/PRO+ after comparing & getting an idea of the subscription plans
- Step 4:- Choose your payment mode & enter your credentials, hit pay now & start your journey of being a data-driven trader
An open interest guide
We have tons of learning content on Youtube to make you a proficient Options trader. Open Interest Analysis is one of the widely used analysis methods in Indian Derivative Markets used to gauge sentiments. Learn from our video from Mrs. Tina Gadodia (President, Quantsapp), Mr. Rahul Prajapati (Head Trainer) & Mr. Shubhankar Patil.
How is open interest used in options trading?
Open interest is the number of outstanding contracts for a given security. It is used to measure the interest of an option contract. An option contract's open interest keeps varying based on how many traders are buying and selling it. The more traders entering into new contracts, the higher its open interest and the higher its liquidity.
Understanding Open Interest and Volume in Trading
- The open interest is the number of contracts that are still open. Open interest is a measure of the number of outstanding contracts that have been bought or sold. Volume is a measure of how much has been traded in a given time period. A high volume in trading means that more many shares were traded on average for the given time period.