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Nifty Open Interest

Open interest (also referred to as open contracts or open commitments) refers to the overall range of spinoff contracts, like futures and options, that haven’t been settled within the straight off previous period of time for a selected underlying security. Nifty open interest conjointly means that the overall range of Nifty options and/or futures contracts that don’t seem to be closed or delivered on a selected day. Conjointly the amount of buy market orders before the stock exchange opens.

How to calculate Nifty Open Interest?

Nifty Open Interest measures the number of outstanding contracts at the tip of every day. Actually, Nifty Open Interest solely records half the outstanding contracts. For every buyer, there should even be a seller, however. This doesn’t have an effect on however we use open interest. Open Interest also can be taken because of the flow of cash coming into and exiting a market.

If Nifty Open Interest is increasing then this can be a symptom that there’s new buying going on. And traders expect this trend to continue. Conversely, if Open Interest is declining it shows that traders are taking their cash out of the market, or liquidating. Therefore the current trend can doubtlessly finish shortly. Similarly, if Nifty Open Interest decreases when prices advance, it’s a symptom that no new buying is going on and therefore the current uptrend is losing steam.

Nifty Option Data Signal and VWAP Signal

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The above chart shows Nifty options data signal and put call ratio. You can also see the trading signal based on Volume Weighted Average Price or VWAP. The data will be printed from 10 AM to 03:45 PM after every 15 minutes. You need to manually refresh the page to see the updated data. Read the usage guide on how to interprete options data of NSE.

Nifty Call OI and Put OI

Nifty Change of OI

The above 2 charts show strike price wise Nifty Open Interest and Change of Open Interest. The chart below shows aggregate change of OI for 20 strikes above or below VWAP.

Nifty Aggregate Change of OI (20 Strikes)

How to use this Nifty Open Interest Page?

How to use the first image?

The more open interest in a call option means the more shorts in it and the strong resistance in that zone. The more open interest in a put option means the more shorts in it and the strong support in that zone. Increase in OI of any call or put denotes writing in the same and Nifty likely to move in the opposite direction. A sudden decrease in OI of any call or put denotes short covering in the same and Nifty likely to move in the direction of the call or put.

How to use the second image?

Increase in OI of any call or put denotes writing in the same and Nifty likely to move in the opposite direction. A sudden decrease in OI of any call or put denotes short covering in the same and Nifty likely to move in the direction of the call or put.

How to use the third image?

The third image shows the aggregate chage of Open Interest 10 strikes above and 10 strikes below the VWAP or Volume Weighted Average Price. The usage is simple. If green (Put change of OI) is more than the red (Call change of OI) then the trend is UP and if red is more then the trend is DOWN. If green is 3 times than the red then it is a STRONG BUY and vice versa for a STRONG SELL.

A practical example

On 28th November 2019, it was an expiry day for the Nifty index. So we checked at the OI figures before the market has opened. We saw the high puts were written at 12000 and 12050 levels. 12100 level has a neck to neck fight between the calls and puts and 12150 zone was holding shorts in call options. So we got a rough idea that expiry is likely between 12050 and 12150 zone. But will it be above or below 12100 zones, that will be decided by the intraday change of open interest chart?

Nifty Open Interest Chart
The OI status before the market has opened

Now as the market opened and trading started we saw put writing started on 12100 levels as the put bars started increasing in the Change of OI chart. Also, we saw call writing at 12150 zones. So we got an idea that the expiry will be between 12100 and 12150. So we will wait for a dip below 12100 to enter long. Or we will wait for a rally above 12150 to enter a short sell position. We will keep a 5 to 10 points room at both the zones for our entry. So our buying entry will be 12095-12105 and the short sell zone will be 12145 to 12155.

Change of Open Interest Chart
Live change of Open Interest in Nifty

The market took a dip exactly at our buy zone and rallied upwards making big gains for 12100 call option buyers. You can also long the futures of the index but best to play with options for big gains on the expiry day.

Nifty Intraday Chart

Combining Nifty Open Interest with Volume

By following Volume and Nifty Open Interest, relative to the current price, traders will get a far better plan on the strength of a current trend. They can also judge the strength of a market breakout from a range. Following Volume and Open Interest isn’t rocket science and as indicators, they’re fairly easy and typically reliable. Each Volume and Open Interest are typically used as secondary indicators.

Volume represents the entire quantity of trade, or what percentage contracts, have modified hands in an exceedingly given day. Big volume bars can show that days had significant trading and on some other days trade was light-weight. The volume figure is often accustomed to verify the strength of this trend. If the volume is high or increasing, then the pressure behind the trend is high. Therefore the current trend is probably going to continue (up or down). If the volume is falling, then the pressure behind the trend is weakening and a reversal perhaps round the corner.

When decoding Volume and Nifty Open Interest remember the following:

  • Once price, volume and open interest are all rising, the price can still rise;
  • When the price is rising, however, volume and open interest are falling, this can be a symptom that this uptrend is weakening;
  • Once prices are falling, however, volume and open interest are rising, then the market is weak and therefore the current downtrend can continue;
  • And at last, once prices, volume, and open interest are all declining, then this downtrend is losing steam and that we might be observing a bottom because the market momentum slows.

Suggested Reading on Open Interest

I will suggest the following ebook on this subject. Volume And Open Interest: Revised Edition. You can download a sample chapter 3 of this ebook that will be very useful for the Nifty trading. Download the free chapter from below.

Conclusion

Open Interest is typically helpful in identifying the hidden supports and resistances of the future and options stocks or indices. It is very helpful in predicting the expiry level of any derivative stocks or indices.