BC OPTIONSLEARNINGS
Saved by @SAnngeri

WHAT IS OPEN INTEREST, HOW TO ANALYZE IT AND DOES IT WORK?

In the thread I'll explain everything about Open interest and also all the tools used to analyze it and my personal opinion.

THIS IS THE ONLY THREAD YOU'LL EVER NEED ON OPEN INTEREST.

 1: What is Oi?

Support if Mr A buys 10 lots of 17000ce in Nifty and Mr B sells 10 lots of call in Nifty then the total Oi on 17000 strike price will be 10.

So Oi is basically the number of outstanding contracts which are not squared off.
2: What is Oi used for?

Oi is only used to determine support and resistance on a particular strike price.
For eg: Nifty 16000pe has the highest Oi and 16200pe has to highest Oi.

So 16000 and 16200 level can be considered as good supports.

In the same way, 16500 ce has highest Oi and it can be considered as a resistance.
3: But why?

Highest Oi at 16500ce indicates that highest number of people have sold it BUT it also means that highest number of people have Bought it!

If 16500 acts as resistance, the option will go to 0 and all the buyers will lose money.
So why do we consider it as resistance?

Why do we look at things from an option seller's perspective?
4: It is generally said that option sellers have deep pockets and they will do anything to protect their position.

And also most of the option sellers are positional hence considering things from their perspective can work .

But there's a catch!
5: Before that I'll explain the different tools/ways used to analyse oi

- Total Oi.
I've explained it already in the above example. 16200pe,16000pe on the put side have highest Oi
And 16500ce and the highest TOTAL OI on the call side. Hence we can expect market to trade between this range.
- Change in Oi

Change in oi represents the total change in Oi "TODAY" or present day/right now.

For example 16300pe has the highest addition on change in oi.

Hence we can expect 16300pe to be a good support since option sellers are building their postions.
- Intraday unwinding:

Taking the above example, lets say if market starts to trade below 16300, then the change in Oi figure of 69k at 16300pe will start to drop.

This indicates that 16300pe writers are giving up and this is a bearish sign.
- Positional unwinding:

If the change in Oi figure, starts to turn negative , then it means that the positional option writers are giving up which is a stronger sign.
For example: The change in oi at 16200ce is negative(-4.9k) which clearly indicates that 16200 call writers have given up indicating bullishness in the market.
6: What should you consider?

Out of these 4 tools what should you consider?

So there is no black and white answer you have to take reference from these tools and form your own view. You have to look at everything.
7: DO I BELIEVE OI STILL WORKS?

NO!

In 2018, Total Oi used to work very well.
In2019, Change in Oi was working very well.

But in 2020, Oi completely stopped working.
8: From 2020, the strikes with the highest oi started to breach.

Earlier it was very rare to see the strikes with highest oi get breached. Market used to perfectly respect it. But that's not the case now.
9: For eg: In Banknifty the oi gets built on every 500pts interval.

If Banknifty is at 35800, then 36000ce will have highest oi and 35000pe will have highest oi.

If Banknifty goes above 36000 , then 36000ce oi will start to drop
and 36000pe will start to build up. Hence the edge is lost.

Oi will keep on building and unwinding at every 500 pts strike price Which does make it useful in 2022.
10: I have also made a Youtube video on OI. check it out. https://t.co/L2eWujgUx0
11: Hope you enjoyed reading this and I hope I've changed your view about Oi.

For more learnings join our telegram channel : https://t.co/uNIrqq5aDP

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