Live Open Interest Charts for Nifty: To effectively utilize Nifty options open interest data, it is prudent to understand what is Open Interest and effects of open interest on options trading. Open Interest charts of Nifty displays data in two charts. First Live Nifty open interest chart displays total present outstanding open interest volume data strike wise for all traded calls and puts of the day. Second Chart which displays Live Open Interest data of Nifty displays the change of Open interest from previous day. It is a good indicator to see in which strikes most action is happening.
If you search google for definition of Open Interest you will find “The number of contracts or commitments outstanding in futures and options that are trading on an official exchange at any one time.”
Open interest indicates it is only applicable only for futures and options but not to equity trading. The uniqueness of Futures and Options Contracts are that they have a finite life and expires at pre determined time. In equities (shares) only trading volume is measured where as in derivatives (futures and options) both trading volume and Open interest in measured.
Let us see what is the difference between trading volume and open interest. Trading volume is total number of shares/contracts traded on a given day. If you see trading volume of any stock as 100000 then it indicates a total of 100000 shares traded on a day. You are sure that total number of shares sold and bought are equal. Where as Open Interest does not tell either increase or decrease in open interest is due buying or selling the options.
|Trading Activity||Trading Volume||Open Interest|
|A Buys 10 Contracts||10||10|
|B Buys 10 Contracts||20||20|
|A sells 5 Contracts||25||15|
As can be seen from the above table Trading volume keeps increasing with every transaction whereas open interest increases when a new position is created and decreases when an existing position is closed (Squared off or Assigned).
Usually Open interest in nifty and other stocks will be maximum in current month contracts and almost negligible in far month contracts. When new contracts are introduced for trading, open interest will be minimum and keep on increasing with time. When the option contract expiry period approaches, traders roll over from current month to next month thus decreasing open interest
Open interest charts or open interest data can better used to interpret the liquidity in the options contracts. Open interest interpretation is also used to judge the liquidity of futures too. If open interest chart indicates open interest in particular strikes is high (Open interest in options is measured for each strike separately), they are high liquid. Traders will benefit trading highly liquid (high open interest) options as the spread will be less and can easily buy and sell at near to market prices.
Interpretation of Open Interest charts with Price
It is most important for option traders to understand the relation between open interest and price direction. Studying and interpreting open interest alone will not give meaning results.
|Price||Open Interest||Interpretation of Price and Open Interest|
|Increase in Price||Increase in Open Interest||Indication of new money coming and indicates further continuance of uptrend|
|Increase in Price||Decrease in Open Interest||Increase in price is due to short covering of positions|
|Decrease in Price||Increase in Open Interest||Decrease in price is due to newly build short positions and further weakness is predicted|
|Decrease in Price||Decrease in Open Interest||Traders unwinding their long positions by selling existing contracts|
While first and third scenarios of interpretation of open interest charts indicate direction of future market trend (Bullish in first case and Bearish in third Case), other scenarios does not indicate a clear trend. Traders can wait for future open interest data or use other indicators to initiate positions.
Options open interest data is interpreted in different ways by traders. For example if maximum open interest is build in 6000 calls of nifty, traders see it as maximum resistance keeping in view that most institutional investors have sold calls at that level and crossing 6000 level is very difficult. Similarly if huge open interest is build for 5600 calls it will be seen as major support zone. Usually, most options trading action will be in between these two levels.