Understanding Open Interest of Equity Futures & Options

Understanding Open Interest of Equity Futures & Options

Open Interest total number of open or outstanding positions (not reversed or squared up ) in Derivative Contracts on a particular period for the particular month.
At present we have maximum trading of Equity Derivatives traded in National Stock Exchange of India Limited and all Equity Derivatives are Cash Settled.
So if :
1) Stock Price Increases and Open Interest Increases it is an Indication of Long Build up
2) Stock Price Decreases and Open Interest also Decreases then it is an Indication of Long Unwinding
3) Stock Price Decreases and Open Interest Increases , it is an Indication of Short Build up
4) Stock Price Increases but Open Interest Decreases then it is an Indication of Short COVERING.
If these type of scenarios are checked Continuously, one can get an idea of the Trend.
Options Open Interest in case of NIFTY

Options Open Interest (NIFTY)

bkt blog

PCR – Put Call Ratio is used to know the Open Interest in Options and the trend is known accordingly
On 16th February at the close of Market, the PCR of Nifty was

47,627,550 Total February Month open interest of Nifty puts divided by 57,620,025 Total February Month open interest of Nifty calls is 0.8266
An indication of Calls of Higher levels has been shorted (PCR less than 1 and Nifty Index falling).

In the Opening 10500 PE (symbol for Puts) was having the highest Open Interest of above 67 lacs
and due to that prices were hovering around 10500 from 11.30am to 1.30pm, and Open Interest started unwinding slowly from 10500 and we saw nifty falling speedily to 10434 and closing at 10452.

Now Monday 19th February will indicate the trend that Open Interest in 10500 Put is Increasing or unwinding and which will be the next support (where Open Interest in Puts will Increase).

** In Expiry week PCR does not have much Relevance BUT Open Interest on Strike prices can give us an Indication of the price Movement of Nifty

Through this Blog , I , Jyoti Budhia will try to create as much Awareness I can in Options.